To be considered an oligopoly, an industry must have:
1. **A small number of interdependent firms:** In an oligopoly, there are only a few major players in the market that dominate the industry. These firms closely monitor and react to each other's actions, making their decisions interdependent. For example, if one company decides to lower prices, the others may follow suit to remain competitive.
2. **Independence in decision making:** While there is interdependence among the firms, each company still maintains a degree of independence in making strategic decisions. They need to consider the potential reactions of their competitors when planning their actions in the market.
3. **Absence of a perfectly elastic demand curve:** In an oligopoly, the demand curve is not perfectly elastic. This means that changes in price by one firm will impact the market demand but not to the extent that all customers will switch to the lowest-priced product. Consumers may remain loyal to a particular brand even if prices change slightly.
Therefore, for an industry to be classified as an oligopoly, it must have a small number of interdependent firms, independence in decision making, and a demand curve that is not perfectly elastic. These characteristics distinguish an oligopoly from other market structures.
