MONOPOLY VS OLIGOPOLY— SIMILARITIES AND DIFFERENCES

A monopoly is a market structure with one supplier of goods with no close substitutes and a very high barrier to entry.

It is defined as the dominance of one supplier in a market.

An oligopoly is a market structure with few firms and a high barrier to entry.

It is defined as the dominance of a few firms in a market.

Similarities between monopoly and oligopoly

1. Both are price makers: Both monopolists and oligopolists are price makers because they have the market power to influence prices above the competitive level.

2. Both have barriers to entry: Barriers to entry are technological and legal factors that can prevent potential firms from entering a market.

High barriers exist in both oligopoly and monopoly due to economies of scale and exclusive control over key resources.

3. Both have imperfect knowledge: Firms in oligopolies and monopolies have imperfect knowledge about the prevailing market conditions and the price being charged.

4. Price exceeds marginal revenue: Oligopolists and monopolists received a price that is greater than their marginal revenue for all output greater than one.

5. Both influence market output: Monopolists and oligopolists have a significant impact on the market output because a decrease in one firm's output can have a significant impact on the entire market output

6. Both maximize profit: Oligopolies and monopolies maximize profit where marginal revenue equals marginal cost.

7. They're both allocatively inefficient: Oligopolies and monopolies are both allocatively inefficient in the long run because they don't produce at the output where price equals marginal cost.

8. Both are productively inefficient: Both oligopolies and monopolies are not productively inefficient because they do not produce at the output level where marginal cost equals long-run average cost.

READ ALSO: MONOPOLISTIC COMPETITION VS MONOPOLY

Difference between Monopoly and Oligopoly.

1. In a monopoly, there is only one supplier, whereas, in an oligopoly, there may be two or more firms.

2. Goods sold in Monopoly have no closed substitute but goods sold in Oligopoly may be homogenous or differentiated.

3. A monopoly can price discriminate, whereas an oligopoly is less likely (but not impossible) to price discriminate.

4. In an oligopoly, price decisions are interdependent, whereas, in a monopoly, prices are set without regard for competitors because there is no competition.

To put it another way, a monopoly set price based on competition whereas an oligopoly set prices based on consumer demand.

5. Collusion is very possible in an oligopoly, whereas collusion is impossible in Monopoly.

6. Monopoly charge high prices, whereas oligopolists charge relatively fair prices, that are highly dependent on competitors' prices.

A monopolist charges a higher price than that an oligopolist because it faces no competition.

7. Single price exists in a monopoly whereas price rigidity exists in oligopolies.

Price rigidity exists in oligopoly markets due to the uncertain associated with price competition

8. The demand faced by a monopolist is elastic and therefore, downward-sloping.

On the contrary, the demand faced by an oligopoly is unpredictable since the response of other firms to price changes cannot be precisely predicted.

If we follow the kinked demand theory of oligopoly, however, we can infer that oligopolistic demand will be kinked.

RELATED POST: PERFECT COMPETITION VS MONOPOLY

Tabular Comparison of Monopoly And Oligopoly

Market/featuresMonopolyOligopoly
Numbers of firmsonefew
Demand curveDownward-slopingindeterminate
Price makerYesyes, but lesser than monopoly
Level of knowledgeimperfectImperfect
Barriers to entryhighvery high
Productively efficientnono
Nature of goodsGoods have no close substituteshomogenous or slightly differentiated
Allocatively efficientnono
Nature of pricingSingle pricerigidity
Possibility of collusionnoyes
Price discriminationVery likelyVery unlikely

To summarize, the major difference between Oligopoly and monopoly is that the former consists of few suppliers while the latter consists of only one supplier.

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