What are the similarities and differences between oligopoly and monopolistically competitive market structure?

Índice Show

Differences Between Monopoly and Oligopoly
Key Differences Between Monopoly and Oligopoly
Comparative Table
Recommended Articles
Key Areas Covered
What is Oligopoly
What is Monopoly
Similarities Between Oligopoly and Monopoly
Difference Between Oligopoly and Monopoly
Characteristics

In a monopoly market, a single seller dominates the market and has the ultimate power to control the market prices and decisions. In this type of market, customers too have limited choices. On the other hand, in an oligopoly market, there are multiple sellers. As a result, there is a huge and never-ending competition to stand out.

You are free to use this image on your website, templates, etc, Please provide us with an attribution link

Source: Monopoly vs Oligopoly (wallstreetmojo.com)

Differences Between Monopoly and Oligopoly

You are free to use this image on your website, templates, etc, Please provide us with an attribution link

Source: Monopoly vs Oligopoly (wallstreetmojo.com)

Key Differences Between Monopoly and Oligopoly

There is a single seller of goods in the market in a monopoly. In an oligopoly, there are few sellers in the market.
There is no competition among the sellers in a monopoly as they are the only ones in the market. In contrast, there are few sellers in the market in an oligopoly, and there is intense competition.
In an oligopoly, the customer has various product choices and is mainly driven by the price, customer preference, and brand loyalty. In contrast, the customer has no option or alternative to pick among the goods in a monopoly.
In an oligopoly, the demand curveDemand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. That means higher the price, lower the demand. It determines the law of demand i.e. as the price increases, demand decreases keeping all other things equal.read more of the market is kinked. While, in a monopoly, the demand curve is downward sloping.

In the long run, in an oligopoly market structure, the seller ends up making the normal profitThe term "normal profit" is used when the profit is zero after accounting for both the implicit and explicit expenses, as well as the overall opportunity costs. It happens when all of the resources have been used to their full potential and cannot be put to better use.read more in the industry as any change in the price will be counter-set by the subsequent fall in the cost of the rival firm. Whereas, in the case of monopoly, there is a possibility that the seller can earn abnormal profitsProfit refers to the earnings that an individual or business takes home after all the costs are paid. In economics, the term is associated with monetary gains. read more in the long run.
The price set by the monopoly is generally controlled or monitored by the government to protect the customers’ interests. For example, electricity is an example of a monopoly marketMonopoly is the “one-&-only” seller of a good or service in the market & it faces no competition from any other entity. Generally, it is controlled or monitored by the Government to safeguard the customers’ interests. read more where there is only one producer of goods. On the other hand, oligopoly is driven by private players in the market. For example, a brand of toothpaste has many closely related substitutes, which is an example of an oligopoly market.

Comparative Table

Monopoly	Oligopoly
A market structure is dominated by a single seller of the goods and the services.	A market structure where numerous sellers sell close substitutes of the goods. Large industries generally dominate the market.
The seller controls the price as there is no competition in the market.	The competition in the market determines the price and keeps in mind the competitor’s actions.
This market structure is a high barrier to entry and exit as the industry is generally capital intensive. There are also economic, institutional, or legal restrictions on this kind of industry.	In this market structure, the barrier of entry is generally high because of the economies of scale in the industry.
A firm is a price maker.	A firm is a price taker.
The demand curve of the market is kinked.	The demand curve of the market is downward-sloping.
Electricity, railways, and water are examples of the monopoly market.	FMCG and automobiles are examples of an oligopoly industry.
No competition exists as there is a single seller of the goods.	Intense or high competition among the sellers.

Key Areas Covered

1. What is Oligopoly
– Definition, Features
2. What is Monopoly
– Definition, Features
3. Similarities Between Oligopoly and Monopoly
– Outline of Association
4. Difference Between Oligopoly and Monopoly
– Comparison of Key Differences

Key Terms

Oligopoly, Monopoly, Market Structure

What is Oligopoly

Oligopoly is a market condition where a small number of sellers co-exist within the market. A market where oligopoly exists is relatively consumer-friendly. This happens mainly as a result of the competition among the sellers. This competition also leads to creating moderate prices and several choices for the consumers. In brief, within an oligopolistic market, a sale or a production decision made by one producer or a seller directly and largely affects the operation and the performance of the other producers or sellers.

Furthermore, within an oligopolistic market, a particular source of power does not exist. The oligopolistic market exists completely as a result of the cooperative nature of other sellers. In brief, oligopolistic markets, therefore, maintain fair prices for consumers mainly due to the prevailing competitiveness.

What is Monopoly

The main characteristic of a monopolistic market is that it is mainly controlled by a single seller. That seller has the power to influence the market decisions and prices. In a monopolistic market, the consumers usually have limited choice, and they have to choose from whatever is supplied. In simpler terms, the monopolist possesses all the power, whereas the consumer lacks the power of making choices.

A monopolistic market obtains its power mainly through three sources: legal, economic, and deliberate. A monopolistic seller will use his position to its advantage. He will chase out the competitors by reducing prices to such an extent that survival in the market becomes impossible for the fellow sellers. Furthermore, economic conditions like a large capital requirement for startup companies and. legal barriers such as intellectual property rights become beneficial for the monopolistic authorities to maintain their power.

In addition, a monopolistic market may often demand high prices. Since there is no other competitor to challenge them, monopolistic sellers would use their power of dominance to maximize their profits.

Similarities Between Oligopoly and Monopoly

Both oligopoly and monopoly are economic market conditions.
Furthermore, these conditions include producers, goods, the market, and consumers.
In both oligopolistic and monopolistic markets, the barriers to entry are very high

Difference Between Oligopoly and Monopoly

Definition

Oligopoly is an economic market condition where several sellers compete with each other to sell a product with slight differences inside the same market. On the other hand, monopoly is an economic market condition where a single seller or a limited number of large firms predominate the market.

Prices

Moreover, within an oligopolistic market, the competition among the sellers leads to generate moderate and fair pricing. On the contrary, within a monopolistic market, higher prices will be charged, mainly due to the lack of competition found there.

Characteristics

Within an oligopoly, a small number of firms compete with each other based on product price, customer service, product differentiation etc. When it comes to monopoly, a single firm controls a large market share as it allows to set prices and earn the highest profit.

Conclusion

In brief, the main difference between oligopoly and monopoly is that within an oligopolistic market, several sellers compete to sell relatively similar products with slight differences, whereas within a monopolistic market, there exists one dominant seller who handles the market pricing in a way that the flow of profits is only directed towards his firm. Therefore, unlike in an oligopolistic market, within a monopolistic market, we cannot observe much competition.

Reference:

1. “Monopolistic Markets – Overview, Characteristics, and Regulation.” Corporate Finance Institute, 3 Feb. 2021.
2. Hayes, Adam. “What Are Current Examples of Oligopolies?” Investopedia, 24 July 2021.

Image Courtesy:

1. “Market Structures” By RHECON3430 – Own work (CC BY-SA 4.0) via Commons Wikimedia
2. “Market Economy” (CC BY-SA 3.0) By Nick Youngson via Blue Diamond Gallery