Which of the following best characterizes a market with oligopolistic competition?

• A. Many small firms compete, each with negligible market power.
• B. A few large firms dominate the market and may engage in strategic interactions.
• C. A single firm controls the entire market and sets prices unilaterally.
• D. Firms sell identical products and there are no barriers to entry.

Answer: (B)

Verified step by step guidance

1. Understand the definition of different market structures: perfect competition, monopoly, oligopoly, and monopolistic competition.
2. Recall that in perfect competition, many small firms compete with negligible market power, and products are identical with no barriers to entry.
3. Recognize that a monopoly is characterized by a single firm controlling the entire market and setting prices unilaterally.
4. Identify that oligopolistic competition involves a few large firms dominating the market, where each firm's decisions affect the others, leading to strategic interactions.
5. Conclude that the best characterization of an oligopolistic market is 'A few large firms dominate the market and may engage in strategic interactions.'