Question

Explain why there are only a few firms in an oligopoly market. 

Answer 1

There are only a few firms in the oligopoly market. The reason for the existence of few firms in the oligopoly market are as follows.

1. Restricted Entry- There exists a cut-throat competition among the firms in an oligopoly market. Consequently, it becomes very difficult for any new firm to enter into the market.
2. High Entry Cost- In addition, as the existing firms are the only giants in the market, so it narrows the scope for a new entrant to enter the industry due to high cost associated with the entry.
3. High Selling Costs- An oligopolistic firm needs to incur heavy selling costs such as, advertisement expenditures to convince and attract the consumers to buy the products.This is due to existence of cut-throat competitions in an oligopolistic market. It becomes very difficult for a new firm to incur such costs.