Why is the automobile industry considered an oligopoly?

• A. Because the industry is regulated by the government and prices are fixed.
• B. Because there are no barriers to entry and many firms compete freely.
• C. Because a small number of large firms dominate the market and influence prices.
• D. Because each firm produces identical products and there is perfect competition.

Answer: (C)

Verified step by step guidance

1. Understand the definition of an oligopoly: It is a market structure characterized by a small number of large firms that dominate the industry and have significant control over prices.
2. Analyze the characteristics of the automobile industry: Identify that it has a few major companies that produce most of the vehicles, which means the market is concentrated among these firms.
3. Recognize the role of barriers to entry: High capital requirements, technology, and brand loyalty make it difficult for new firms to enter the automobile market, reinforcing the dominance of existing firms.
4. Compare with other market structures: Unlike perfect competition where many firms produce identical products, or monopolistic competition with many firms and differentiated products, the automobile industry has few firms with differentiated products but significant market power.
5. Conclude that because a small number of large firms dominate the market and influence prices, the automobile industry fits the definition of an oligopoly.