A system, with some capitalistic features, sometimes mistaken for Capitalism, in which business decisions are powerfully influenced by business friendships and family ties. Many Western businesses have been perplexed and thwarted in attempts to compete in Asian countries by cultural differences which might cause a Japanese firm to deal with another Japanese firm despite a higher cost rather than to deal with an American firm.
Crony capitalism is generally not true capitalism because the "crony" basis for decision making extends to both government and private industry. That is, government decisions may be made in the best interests of a particular set of well-connected cronies, rather than the best interests of the market as a whole.
Defenders of crony capitalism would not call it crony capitalism, of course, because the word 'crony' has negative connotations. In Japan, the system is known as 'kereitsu'. Such systems tend to have the features of an oligopoly.