What type of market structure is characterized by a few firms dominating the market?

The correct answer is that the market structure characterized by a few firms dominating the market is known as an oligopoly. In an oligopoly, a small number of firms hold significant market power, which allows them to influence prices and market conditions. This concentration of market power can lead to strategic behavior among the firms, such as collusion or price-setting, as they are affected by each other's actions.

One of the key features of an oligopoly is the interdependence of the firms. Each firm's decisions regarding pricing and output levels can significantly impact competitors, leading to a complex competitive environment. Unlike in a monopoly, where one firm is the sole provider in the market, oligopolistic markets allow for competition among a few large players, which can result in innovation and a range of products available to consumers.

Understanding the dynamics of oligopolies is crucial for analyzing market behavior and the implications for consumers and the economy as a whole. The presence of a few dominant firms often leads to less consumer choice compared to markets with more competition, while still showcasing some competitive characteristics that can benefit consumers, such as product differentiation.