minimum of the average cost curve—which means that the market would have room for only two or three

oligopoly firms (and they need not produce differentiated products). Again, smaller firms would have higher

average costs and be unable to compete, while additional large firms would produce such a high quantity that

they would not be able to sell it at a profitable price. This combination of economies of scale and market

demand creates the barrier to entry, which led to the Boeing-Airbus oligopoly (also called a duopoly) for large

passenger aircraft.

The product differentiation at the heart of monopolistic competition can also play a role in creating oligopoly.

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10.2 • Oligopoly 247

For example, firms may need to reach a certain minimum size before they are able to spend enough on

advertising and marketing to create a recognizable brand name. The problem in competing with, say, Coca-
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