Monopoly vs. Oligopoly

Monopoly
Oligopoly

Monopoly and oligopoly are economic market conditions. Monopoly is defined by the dominance of just one seller in the market; oligopoly is an economic situation where a number of sellers populate the market.

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Monopoly

Oligopoly

Meaning An economic market condition where one seller dominates the entire market. An economic market condition where 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 is no competition Moderate/fair pricing due to 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 entry 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. Barriers to entry are very high as it is difficult to enter the industry because of economies of scale.
Sources of Power Market making ability by virtue of being virtually the only viable seller in the industry. 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.
Examples Microsoft (Operating systems, productivity suites), Google (web search, search advertising), DeBeers (diamonds), Monsanto (seeds), Long Island Rail Road etc. Health insurers, wireless carriers, beer (Anheuser-Busch and MillerCoors), media (TV broadcasting, book publishing, movies), etc.

Contents: Monopoly vs Oligopoly

An oligopoly of various brands (click to enlarge)
An oligopoly of various brands (click to enlarge)

edit Characteristics

Monopolistic markets are controlled by one seller only. The seller here has the power to influence market prices and decisions. Consumers have limited choices and have to choose from what is supplied. The monopolist asserts all the power while the consumer is left with no choice. This market condition usually arises from mergers, take-overs and acquisitions.

Oligopoly, on the other hand, is a market condition where numerous sellers co-exist in the market place. This market situation is very consumer-friendly because it induces competition amongst sellers. Competition in turn ensures moderate prices and numerous choices for consumers. A decision taken by one seller in an oligopolistic market has a direct effect on the functioning of other sellers.

edit Sources of power

A monopolistic market derives its power through three sources: economic, legal and deliberate. A monopolistic entity will use the position it is in to its advantage and drive out competitors either by reducing prices to such an extent that survival for another seller may become impossible or by virtue of economic conditions like large capital requirement for startup companies. Legal barriers like intellectual property rights also help a monopolistic entity retain its power. Deliberate attempts for monopolistic markets would include collusion, lobbying governmental authorities etc.

Though an oligopolistic market does not have any sources of power, it comes into existence solely due to the accommodating nature of other sellers.

edit Prices

A monopolistic market may quote high prices. Since there is no other competitor to fear from, the sellers will use their status of dominance and maximize their profits.

Oligopoly markets on the other hand, ensure competitive hence fair prices for the consumer.

edit Monopolistic Production

This video explains how monopolies reduce production and increase prices in the market.

edit Examples

Long Island Rail Road and Long Island Power Authority are examples of monopolistic markets.

Oligopoly exists in Australia in the telecom sector (Telstra rents phone lines to other providers and they subsequently rent to customers), the grocery business(Coles and Woolworths) and media outlets (News Corporation, Time Warner and Fairfax Media).

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"Monopoly vs Oligopoly." Diffen.com. Diffen LLC, n.d. Web. 1 Aug 2014. < http://www.diffen.com/difference/Monopoly_vs_Oligopoly >

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April 3, 2014, 2:00pm

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