Yogesh .

A 19BCC0028

BUSINESS ECONOMICS

DIGITAL ASSIGNMENT 3
Differentiate between Monopolistic and Oligopolistic Market Structure with appropriate
examples.

Basis for Monopoly Oligopoly

comparison

Meaning An economic market condition where An economic market condition where

one seller dominates the entire market. numerous sellers have their presence
in one single market. A small number
of large firms that dominate the
industry.

Prices High prices may be charged since there Moderate/fair pricing due to
is no competition competition in market. But much
higher than perfect competition (where
there is a large number of buyers and
sellers)

Characteristics A single firm controls a large market
share in the industry, thereby gaining the
ability to set price.
A small number of firms dominate the
industry. These firms compete with
each other based on product
differentiation, price, customer service
etc.

Barriers to A monopoly usually exists when barriers Barriers to entry are very high as it is
entry to entry are very high - either due to difficult to enter the industry because
technology, patents, distribution of economies of scale.
overheads, government regulation or
capital-intensive nature of the industry.

Sources of Market making ability by virtue of being Market making ability because of very
Power virtually the only viable seller in the few firms in the industry. Each firm
can therefore significantly influence
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industry. the market by setting price or

production quantity.

Examples Microsoft (Operating systems, Health insurers, wireless carriers, beer

productivity suites), Google (web search, (Anheuser-Busch and MillerCoors),
search advertising), DeBeers (diamonds), media (TV broadcasting, book
Monsanto (seeds), Long Island Rail publishing, movies), etc.
Road etc.

Definition of Monopoly

In simple terms, Monopoly means ‘sole to sell.’ It is a situation of the market where there exist
only one seller in the market for a particular commodity or service, supplying goods to many
customers and he is having ultimate control over it. The product or service offered by the seller is
unique, which do not have any close substitute. Due to the dominance of the whole market, they
enjoy the benefit of large scale production. The salient features of monopoly are as under:

There is only one seller in the whole market who produces or supplies a product.Entry to such a
market is restricted due to factors like license, ownership of resources, etc.There are no close
substitutes of the commodity offered by the monopolist.

In a monopoly market, there is no competition and so the monopolist overcharges the prices of
products. Under this market structure, price discrimination exists in a way that the price varies
from customers to customers for the same product.

The prices also differentiate according to the quantity demanded by the buyer i.e. if the quantity
demanded is high; then the low price is charged and vice versa. This practice is followed to reap
maximum revenue, to dispose of the excess stock or to capture foreign markets.

Definition of Oligopoly

In simple terms oligopoly refers to ‘competition among the few‘. It is an economic situation
where there is a small number of firms, selling competing products in the market. The oligopoly
exists in the market, where there are 2 to 10 sellers, selling identical, or slightly different
products in the market. According to experts, oligopoly is defined as a situation when the firm
sets its market policy, as per the anticipated behavior of its competitors.

In an oligopolistic market, a firm has to rely on other firms for taking decisions regarding prices
because the slightest change in the price of rivals may cause loss to the firm.
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The other feature of this type of market is the use of marketing tools like advertising to get the
maximum market share. Each and every firm of the industry, closely observes the moves and
actions of the competitors to plan its steps according to the behavior of its rivals.

The following are the various forms of oligopoly:

Collusive oligopoly is when the firm act, in cooperation with other firms in the market in setting
the price and output.

Competitive oligopoly is when the cooperation is missing between firms, and they compete with
one another.

Perfect oligopoly is when the product is identical in nature.

Imperfect oligopoly is when firms sell different products.

Open oligopoly is when the new firms are free to enter.

Closed oligopoly is when restrictions are there for entering the market.

Others include partial or full oligopoly, syndicated or organized oligopoly, etc.

Key Differences Between Monopoly and Oligopoly

The following are the major differences between monopoly and oligopoly:

Monopoly refers to a type of market, having a single seller dominating the whole market. The
economic structure where there are a handful of sellers in the market selling similar products and
competing among themselves.

In monopoly as there is a sole seller of a product or provider of service, the competition does not
exist at all. On the other hand, in oligopoly, a slight competition is there among the firms.

In a monopoly, there is only one player in the entire market, but in oligopoly, the range of
players is 2 – 10, in the market.

In a monopoly, the seller dominates the market by selling a unique product for which no
substitute is available. Conversely, in oligopoly, the product or service offered by the firm are
either similar or different having close substitutes.
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In monopoly the price discrimination exist, different customers have to pay a different price for
the same product. In contrast to oligopoly, price remains fixed for a long time.

In an oligopoly, the firms set the product price on the basis of the price of the same product
offered by the rival seller in the market, which is just opposite in the case of monopoly, as there
are no rivals.

The reasons for restriction on the entry in the monopoly market can be legal, economic or
institutional but the major for the barrier in oligopoly is economies of scale.

Example
Monopoly

Practically, the monopoly can be seen in services related to the public utility like transport,
electricity, water and so on.

Oligopoly

One can find oligopoly in industries like a cold drink, automobile, telecommunication etc.

Conclusion

In practical life, we find monopoly in transport like railways and other public utility services
only, but oligopoly exists in many industries of the economy like the automobile industry,
telecommunication industry, soft drink industry, plastic industry, etc.

Faculty name : ALLI . P

Submitted by : YOGESH . A

Register no: 19BCC0028