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What is the difference between a Monopoly and an Oligopoly?

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posted Jul 11 by Prachi

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A monopoly and an oligopoly are economic market structures where there is imperfect competition in the market. A monopoly market contains a single firm that produces goods with no close substitute, with significant barriers to entry of other firms. An oligopoly market has a small number of relatively large firms that produce similar but slightly different products. Again, there are significant barriers to entry for other enterprises.

In a monopoly, the seller charges high prices for the goods because there is no competition. In an oligopoly, the prices are moderate due to the presence of competition. However, they are higher than they would be in perfect competition.

Barriers to entry in a monopoly market are high due to technology, high capital requirement, government regulation, patents and high distribution overheads. In an oligopoly market, the barriers to entry are high due to the economies of scale.

A monopoly draws power from the fact that it is the only viable seller of the product in the industry. There are very few true monopolies in the U.S. However, there are oligopolies, and in an oligopoly, firms can influence the market by setting their prices, marketing strategies, and customer service.

In an oligopoly, firms may collude rather than compete. The cooperation makes them operate as though they were one firm. This changes the market structure from being an oligopoly to a monopoly. There must be some measure of competition in an oligopoly market structure. An example of an oligopoly is the U.S. mass media sector where a few dominant players such as Viacom Inc., NBC Universal, and The Walt Disney Co. control the majority of the market.

The geographical size of the market also determines whether it is an oligopoly or a monopoly. A firm may dominate an industry in a particular area where there are no alternatives to the same product but have two or three similar companies operating nationwide. Thus, the firm may be a monopoly in a region but operate in an oligopoly market in a larger geographical area.

answer Jul 12 by Mukul Chag
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