What is an oligopoly? Give three examples of oligopolistic industries in the United States.

In understanding economies, the concept of 'market structure' is fundamental. It refers to the organisation and characteristics of a market, mainly the nature and degree of competition for goods and services. Among the various types of market structures, oligopoly is particularly interesting due to its rarity and complexities.

Oligopoly exists when a market is dominated by a small number of firms. Unlike perfect competition, where many firms compete and none has any significant market power, or monopoly, where a single firm has total control, an oligopoly lies somewhere in between. Firms in an oligopoly are interdependent because changes in price or output by one firm can directly affect the sales and profits of the others. Due to this interdependence, oligopolistic firms often engage in strategic planning and are very aware of their competitors' actions.

A crucial element in preserving an oligopoly is the presence of 'barriers to entry'. These barriers prevent new competitors from easily entering the industry and disrupting the established firms' control of the market. Barriers to entry can be natural or artificial.

Natural barriers include economies of scale, where larger firms have a cost advantage that is unmatchable by new, smaller entrants. Capital requirements can also be substantial, as in industries requiring heavy investment in machinery and infrastructure. Patents, limiting the ability to use certain technologies, and control over essential resources are other barriers that secure the position of incumbent firms.

Artificial barriers, on the other hand, may result from governmental regulations or aggressive strategies by existing companies, such as predatory pricing, exclusive contracts with suppliers, or high-cost loyalty programs. These deliberate tactics can discourage potential entrants or even force them out if they manage to enter.

In oligopolistic markets, competition extends beyond price. 'Non-price competition' stands as a battlefield where firms vie for market share without altering the price. It involves several strategies aimed at distinguishing a firm's product from those of its competitors.

One common tactic is advertising. Firms spend considerable amounts on promotional activities to build brand loyalty and awareness. Quality enhancement enters the fray, with companies striving to improve their product's perception through modifications and technological advancements. Customer service is another area of competition, offering consumers a better shopping experience or after-sales support. Exclusive deals, loyalty rewards, and product bundling are additional instruments companies use to attract and retain customers without necessarily cutting prices.

Non-price competition is critical in oligopolies since price wars can be detrimental. If one firm cuts prices, others might follow, leading to reduced overall profitability. Therefore, firms seek to compete in other areas that can provide them with a competitive edge while maintaining stable prices.