What type of market structure is characterized by a few firms that have significant market power?

Oligopoly is indeed the correct answer because it describes a market structure dominated by a small number of firms that have substantial control over market prices and output. In an oligopoly, these firms are interdependent, meaning the actions of one firm can significantly influence the actions of others. This is in contrast to perfect competition, where numerous firms exist with no single company able to control the market, leading to price-taking behavior rather than price-setting.

In a monopoly, there is only one firm that completely controls the market, whereas oligopolies consist of multiple firms that share market power but still exert considerable influence over the pricing and supply of their products. Monopolistic competition involves many firms competing with products that are differentiated but still cannot exert much market power individually.

The distinguishing characteristic of oligopolies is the limited number of firms that enables them to act strategically, leading to potential collusion or tacit agreements on pricing or market shares, thereby allowing these firms to maintain higher profit margins compared to those in more competitive market structures.