Which of the following is NOT a characteristic of an oligopoly?

A. has some pricing power

B. low barriers to entry

C. small number of firms

D. the good produced may be unique or not

E. the firms are interdependent

• The answer to this question is B. low barriers to entry.

An oligopolistic market has the following fundamental assumptions:

(1) There are only a few firms operating in the market.

(2) Firms produce a homogenous or slightly differentiated product.

(3) Firms may compete over prices or quantities. Three basic oligopoly models are being examined here: First, Bertrand Oligopoly, where firms compete by simultaneously choosing price; Second, Cournot Oligopoly where firms compete by simultaneously choosing quantity; and Lastly, Stackelberg Oligopoly where firms choose quantities sequentially.

(4) Firms maximize their individual profit

Although entry is restricted, it is not a necessary condition in this model. Oligopolistic firms are strategically interdependent to one another, from pricing and output decisions, and even advertising. Due to a few firms with large market share operating under in this market, any decision made by a firm would affect the strategies of the other, creating a barrier to potential entrants. Barriers to entry are factors that serve as hindrances for other firms to enter into a desired market. Examples include economies of scale, consumer brand loyalty, product differentiation, cost advantages, government policies, and ownership of resources.