What is one impact of an oligopoly on consumers?

What is one impact of an oligopoly on consumers?

• A. Prices are always the lowest
• B. Many choices are available with no price influence
• C. Pricing and production strategies can be adversely affected
• D. Competition is enhanced

Answer: (C)

An oligopoly is a market structure characterized by a small number of firms that dominate the market. One significant impact of this market structure on consumers is that pricing and production strategies can be adversely affected.

In an oligopolistic market, the few firms are interdependent; that is, the decisions made by one firm will affect the other firms. This can lead to a situation where firms may engage in collusion or tacit understandings to set prices higher than they would be in a more competitive market, limiting the benefits of competition. Consequently, consumers may face higher prices than they would in a market characterized by perfect competition, where many firms compete freely.

Additionally, because there are only a few firms, consumer choices can also become restricted. If the firms are not competing aggressively on prices or if they engage in behavior that limits market entry for new competitors, consumers may end up with fewer options and less price sensitivity. Thus, the strategic decisions made by these firms could harm consumers, leading to higher prices and fewer choices overall.

Understanding these dynamics is crucial to grasp the broader implications of market structures like oligopolies on consumer welfare and market efficiency.