IB International Economics Higher Level (HL) Practice Exam 2026 - Free IB Economics HL Practice Questions and Study Guide

In an oligopoly, a market structure characterized by a small number of firms that dominate the market, collaboration on pricing or output is a key strategic focus. Firms in an oligopoly are interdependent; the actions of one firm can significantly influence the others. Because of this interdependence, firms often engage in strategies that include collusion, either formally or informally, to maximize their profits and stabilize the market.

When firms collaborate on pricing or output decisions, they can effectively reduce competition among themselves, allowing them to establish higher prices and increase their overall profitability. This collaboration can be seen in practices such as price-fixing agreements, where firms agree to set prices at a certain level, or output restrictions, where they limit production to drive prices up.

This strategic focus stands in contrast to the other options presented. Reducing market control or increasing market competition would undermine the perceived benefits of oligopoly, as firms would compete more aggressively, potentially leading to lower prices and profits. Similarly, eliminating product differentiation diminishes a firm’s ability to attract customers based on unique product features, which is particularly important in oligopolistic markets where firms compete on both price and quality.