The main difference between oligopoly and monopoly is that monopoly takes place when an individual company produces goods with no similar or close market substitutes, whereas oligopoly takes place when several relatively large companies produce similar goods with slight differences.
In both cases, oligopoly and monopoly are economic market conditions. Monopoly simply refers to the dominance of a single seller in the market, while oligopoly is a market condition situation where a number of producers compete in the market.
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
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