If the market of a particular commodity consists of more than one seller but the number of sellers is few, the market structure is termed oligopoly. The special case of oligopoly where there are exactly two sellers is termed duopoly. We shall explain the different ways in which the oligopoly firms may behave.

• Firstly duopoly firms may collude together and decide not to compete with each other and maximize total profits of the two firms together. In such a case the two firms would behave like a single monopoly firm that has two different factories producing the commodity.
• Secondly, take the case of a duopoly where each of the two firms decide how much quantity to produce by maximizing its own profit assuming that the other firm would not change the quantity that it is supplying. We can examine the impact using a simple example where both the firms have zero cost.
• Thirdly, some economists argue that oligopoly market structure makes the market price of the commodity rigid, i.e., the market price does not move freely in response to changes in demand.