Oligopolies refer to a market structure in which a small number of producers interact strategically, either tacitly or explicitly, in order to restrict the output while achieving above-normal returns. These firms may be either competing against one another or coordinating in order to influence the price and level of output.

Economical, legal, and technological conditions have an effect on the formation and continued existence, or otherwise, of an oligopoly. Companies that are typically dominant in an oligopoly, stick to their competitive positions, collude with other players, and compete with non-oligopoly firms in order to achieve the targets. Such firms become influential in the market, which has the potential to create adverse effects on the economy.

One of the major challenges for oligopolistic firms is the prisoner's dilemma that each single member of the group faces, which encourages them to break the collusion. They can end up with a profitadvantage, as compared to their cooperating rivals, by acting differently.

The government generally has a key role to play in shaping the actions of firms in an oligopoly. It can pass regulations to promote or discourage such behavior, or run measures to support one set of firms and discredit the other. In mixed economies, private businesses will often look for government agreement in order to reduce competition and raise prices.

Oligopolies, by and large, have an adverse effect on an economy via price rigging and reduced investments in innovation. They are considered anti-competitive and anti-consumer, as interest of the firms take precedence over the interests of the consumers. Countries that have anti-trust laws put in place to reduce the possibility of oligopolies, and ensure competitive markets.