Why is competition limited in an oligopoly?

Answer 1

Competition is limited in an oligopoly because a small number of firms dominate the market, leading to interdependence among them. Each firm is acutely aware of the actions and reactions of its competitors, which discourages aggressive price cuts or innovations that could provoke a price war. Additionally, barriers to entry, such as high startup costs and brand loyalty, prevent new competitors from entering the market, maintaining the status quo among the existing firms. This results in a market structure where firms often engage in non-price competition, such as marketing and product differentiation, rather than competing primarily on price.