Short Answer 
An oligopoly is a market structure where a few companies dominate, limiting competition and potentially leading to higher prices for consumers. To foster competition, businesses in this environment often use strategies like promotions, advertising, and cultivating brand loyalty. Effective practices include offering incentives to attract customers, enhancing brand awareness, and building strong customer relationships.
Step 1: Understanding Oligopoly
The term oligopoly refers to a market structure dominated by a few companies. In this type of market, these companies control a significant portion of the market share, resulting in limited competition. This leads to higher prices for consumers and stifles innovation because new entrants face barriers to entry.
Step 2: Strategies to Foster Competition
Producers within an oligopoly often employ specific strategies to create a semblance of competition. These strategies include:
- Offering promotions to attract customers and boost sales.
- Advertising to increase brand visibility and influence consumer preferences.
- Cultivating brand loyalty by enhancing customer relationships, ensuring repeat business.
Step 3: Identifying Correct Practices
To effectively compete in an oligopoly, businesses predominantly focus on three key areas. The practices that are most effective include:
- Offering promotions: Provides incentives that can draw customers away from competitors.
- Advertising: Helps to create brand awareness and promote product differentiation.
- Cultivating brand loyalty: Engages customers to build trust and repeat purchases.