Oligopoly
Also called: cartel, duopoly
An oligopoly is a market dominated by a few large firms, each of which must consider how the others will react. Airlines, wireless carriers and cloud computing are examples.
Firms in an oligopoly are tempted to collude like a cartel, but each also has an incentive to cheat, a situation game theory models as a prisoner's dilemma.
Related terms
- Game theory: Game theory is the study of strategic decisions, where each player's best choice depends on what the others do.
- Monopoly: A monopoly is a market with a single seller and no close substitutes, which lets it set a higher price and sell less than a competitive market would, creating deadweight loss.
- Nash equilibrium: A Nash equilibrium is a set of strategies in which no player can do better by changing their own strategy while the others keep theirs.
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