Small Number of Rival Firms

• An oligopoly must have at least two or more competing firms, although there cannot be more than a few. These firms hold considerable amount of market power, thus each firm's decisions can have a drastic effect on the market. As a result, companies in an oligopoly must tailor strategies based on how competitors will react. Companies in oligopoly markets tend toward two potential behaviors. Either the companies will collude with each other equating to only tepid competition, or companies will compete aggressively.
  
  

Economies of Scale

• Large companies controlling a significant portion of the market will experience what is known as economies of scale. An economy of scale has to do with a firm's ability to negotiate lower costs due to the size of the company. For example, large market share can give a company significant bargaining power over suppliers as is the case with Walmart. In this scenario, Walmart is able to get lower prices from manufacturers because of the large quantities that they purchase in relation to competitors.
  
  

Above-Normal Profit

• Fewer firms results in less competition. In a perfectly competitive market, there are a large number of firms giving consumers the ability to substitute to a lower-cost product. However, oligopolies provide scarce alternatives, thus consumers have less bargaining power on cost. Additionally, oligopolies result in large firms that have economies of scale providing lower costs to producers.
  
  

Barriers to Entry

• There are a number of barriers of entry that companies in oligopoly markets may employ. A barrier to entry is a natural element that exists in the market that makes it difficult for new companies to be competitive. Barriers to entry in an oligopoly markets include patents and government regulation, distribution advantages, non-price competition, economies of scale and first-mover advantage.