Monopoly Vs Oligopoly

Republic of Albania
Agricultural University of Tirana

Faculty of Economy and Agribusiness
TOPIC : MONOPOLY VS OLIGOPOLY
Worked by:
Brikena Plaku
Accepted by:
Ariana Nepravishta
Tirane, 2016
Monopolyandoligopolyare
economic market conditions.
Monopolyis defined by the
dominance of just one seller in the
market;oligopolyis an economic
situation where a number of sellers
populate the market.
Definition of
In simple terms, Monopoly means sole to sell. It is a situation of 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 in 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 prices of products are overcharged by the
monopolist. 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 differentiates according to
the quantity demanded by the buyer i.e. if the quantity demanded is high, then low price is charged
and vice versa. This practice is followed to reap maximum revenue, to dispose off the excess stock or
to capture foreign markets.
The advantages of monopolies

Monopolies can be defended on the following grounds:
1.They can benefit fromeconomies of scale, and may
be natural monopolies, so it may be argued that it is
best for them to remain monopolies to avoid the
wasteful duplication of infrastructure that would
happen if new firms were encouraged to build their
own infrastructure.
2.Domestic monopolies can become dominant in their
own territory and then penetrate overseas markets,
earning a country valuableexport revenues. This is
certainly the case with Microsoft.
3.According to Austrian economistJoseph Schumpeter,
inefficient firms, including monopolies, would
eventually be replaced by more efficient and effective
firms through a process calledcreative destruction.
4.It has been consistently argued by some economists
that monopoly power is required to generate dynamic
efficiency, that is,technological progressiveness.
The disadvantages of monopoly to the

consumer
Monopolies can be criticized because of their
potential negative effects on the consumer,
including:
1.Restricting output onto the market.
2.Charging a higher price than in a more
competitive market.
3.Reducingconsumer surplusand economic
welfare.
4.Restricting choice for consumers.
5.Reducing consumer sovereignty.
Definition
of
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. Oligopoly exist 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 a slightest change in the price of rivals may cause loss to the firm. 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 in
order 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 into the market.
Others include partial or full oligopoly, syndicated or organized oligopoly etc.
The advantages of oligopolies

However, oligopolies may provide the following
benefits:
1.Oligopolies may adopt a highly competitive
strategy, in which case they can generate similar
benefits to more competitive market structures,
such as lower prices. Even though there are a few
firms, making the market uncompetitive, their
behavior may be highly competitive.
2.Oligopolists may be dynamically efficient in
terms of innovation and new product and
process development. The super-normal profits
they generate may be used to innovate, in which
case the consumer may gain.
3.Price stabilitymay bring advantages to
consumers and the macro-economy because it
helps consumers plan ahead and stabilizes their
expenditure, which may help stabilize the trade
cycle.
The disadvantages of oligopolies

Oligopolies can be criticized on a number of
obvious grounds, including:
1.High concentration reduces consumer choice.
2.Cartel-like behavior reduces competition and can
lead to higher prices and reduced output.
3.Given the lack of competition, oligopolists may be
free to engage in the manipulation of consumer
decision making. By making decisions more
complex - such asfinancial decisions about
mortgages - individual consumers fall back on
heuristicsand rule of thumb processes, which can
lead to decision making biasand irrational
behavior, including making purchases which add no
utility or even harm the individual consumer.
4.Firms can be prevented from entering a market
because of deliberatebarriers to entry.
5.There is a potential loss of economic welfare.
6.Oligopolists may be allocative and
productivelyinefficient.
Key Differences Between Monopoly and Oligopoly

The following are the major differences between monopoly and oligopoly:
1.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.
2.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.
3.In monopoly there is only one player in the entire market, but in oligopoly the range of players is 2
10, in the market.
4.In 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.
5.In monopoly the price discrimination exist, different customers have to pay different price for the
same product. In contrast to oligopoly, price remains fixed for a long time.
6.In an oligopoly, the firms sets the product price on the basis of price of the same product offered by
the rival seller in the market, which is just opposite in case of monopoly, as there are no rivals.
7.The reasons for restriction on the entry in the monopoly market can be legal, economic or
institutional but the major for barrier in oligopoly is economies of scale.
Monopoly
Meaning
Prices
An economic market
condition where one seller
dominates the entire
market.
High prices may be
charged since there is no
competition
A single firm controls a

Characteristic large market share in the
industry, thereby gaining
s
the ability to set price.
Oligopoly
An economic market condition
where numerous sellers have
their presence in one single
market. A small number of
large firms that dominate the
industry.
Moderate/fair pricing due to
competition in market. But
much higher than perfect
competition (where there is a
large number of buyers and
sellers)
A small number of firms
dominate the industry. These
firms compete with each other
based on product
Barriers to
entry
Sources of
Power
Examples
A monopoly usually exists

when barriers to entry are
very high - either due to
technology, patents,
distribution overheads,
government regulation or
capital-intensive nature of
the industry.
Market making ability by
virtue of being virtually the
only viable seller in the
industry.
Barriers to entry are very

high as it is difficult to
enter the industry because
of economies of scale.
Market making ability

because of very few firms
in the industry. Each firm
can therefore significantly
influence the market by
setting price or production
quantity.
Microsoft (Operating
Health insurers, wireless
systems, productivity
carriers, beer (Anheusersuites), Google (web search, Busch and MillerCoors),
References:
http://en.wikipedia.org/wiki/Monopoly#Monopoly_ver
sus_competitive_markets
http://en.wikipedia.org/wiki/Oligopoly
http://
www.economicsonline.co.uk/Business_economics/Monop
oly.html
http://
www.economicsonline.co.uk/Business_economics/Oligop
oly.html

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What are some of the characteristics of monopoly and oligopoly markets?

What are some of the differences between monopoly and oligopoly?

Republic of Albania

Agricultural University of Tirana

TOPIC : MONOPOLY VS OLIGOPOLY

The advantages of monopolies

The disadvantages of monopoly to the

The following are the various forms of oligopoly:

The advantages of oligopolies

The disadvantages of oligopolies

Key Differences Between Monopoly and Oligopoly

A single firm controls a

A monopoly usually exists

Barriers to entry are very

Market making ability

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