On the other hand, monopoly market structure represents the other extreme in that it demonstrates the inefficiency brought about by the absence of competition and rigid control of the market by a single market player Machovec, 2002. Therefore, the sellers have to accept the price ascertained by the demand and supply forces of the market and sell the product, as much as they can at the price prevailing in the market. The following assumptions are made when we talk about monopolies: 1 the monopolist maximizes profit, 2 it can set the price, 3 there are high barriers to entry and exit, 4 there is only one firm that dominates the entire market. Difference as regards the slope of Marginal Cost Curve: Under perfect competition in the long-run, equilibrium is possible when the marginal cost is rising at the point of equilibrium. In reality, perfect competitive market structure does not exist. Difference Between Oligopoly and Monopolistic Competition An oligopoly market structure is one in which there are a few large producers who are present in the industry and account for most of the output in the industry, there are many small firms but these few large firms dominate and have concentrated market shares. In the case of a perfect competition, the consumer may benefit because no matter where they purchase a certain product, the price for the product is relatively the same as it is if it were purchased at a different store.
Consequently, no individual firm is in a position to predict the effect of price-output decision adopted by other firms. This is not the case with monopoly markets. This is an indication of a high level of interdependence among the few firms in oligopoly market structure. Barriers to Entry As it has already been discussed, oligopoly represents high barriers to entry as compared to the monopolistic competition, but it is a matter of degree. Monopolistic Competition Monopolistic competition also refers to a market structure, where a large number of small firms compete against each other. Under monopolistic competition every producer produces differentiated products. Oligopolies offer more than one good or service.
The monopoly market structure represents complete control by a single player or firm. You have Visa, Mastercard, American Express, and Discover. Differences Both monopolistic competition and oligopoly depict an imperfect competition. Oligopoly An oligopoly is a state of limited competition, in which a market is shared by a small number of producers or sellers. Monopoly and Oligopoly Essay The Main characteristics of an oligopoly are that the supply of a product or products is concentrated in the hands of a few large suppliers, there could be thousands of small suppliers but the market is mainly dominated by around 4 or 5 large firms. If the firm tries to increase the price in a perfectly competitive market then no consumers will buy from that firm because there are numerous other firms that sell that the same good. Oligopolies are based on a market where there a few companies own or control the production of a product or service whereby the few companies control the market of products and services provided.
On the contrary, products are close substitutes under monopolistic competition. All of your customers come to me to save money. Under Monopoly, the firm gets super-natural profits. But if they cannot cooperate and instead they compete because of following their own self-interest, then price goes down and profits decline. In an oligopoly, collusion is the most typical infraction to lead to. The marginal revenue of firms in perfect competitive market structure equals the price in the market. Monopolistic Competition Monopolistic Competition characterizes an industry that many firms offer different products and services that are similar, but they are not perfect substitutes.
Mutual interdependence means that firms realize the effects of their actions on rivals and the reactions such actions are likely to elicit. The existence of mutual interdependence in the market leads to the creation of uncertainty for all the firms. On the other hand, monopolistic competition market refers to a market with large number of firms, each producing slightly different product, i. Monopolies have also occurred without the government grating them. Monopolistic Competition In monopolistic competition, several or many sellers produce products that are similar, although slightly different, and each producer determines its own price and quantity. The price P1 represents the market-clearing price which is always taken by each of the firms in the industry. On the other hand, the monopoly firm can make supernormal profits or normal profits depending on the decisions it makes.
Due to lack of competitors, the monopoly company has control of the supply and price of the good or service, unless there is government intervention. Say we both were in the same industry, but I had more money than you did. On the contrary, there are many firms in monopolistic competition and the industry is called a group. In other words, the single business is the industry. Meanwhile, monopolistic competition refers to a market structure, where a large number of small firms compete against each other with differentiated products. The monopoly firm is the industry.
On the contrary, a monopoly firm possesses information that is unknown to other firms. Collusion leads to the creation of cartels sometimes leading to powerful firms. These types of competition include: Perfect competition, imperfect competition, oligopoly, and monopoly. Oligopoly markets also comprise of firms with tendencies of group behavior. They persuade the consumers and competitors in the market vary esay Advantages vs. Now, those assumptions are a bit closer to reality than the ones we looked at in perfect competition. This leads to erosion of market share as well as massive decreases in the quantities demanded.
Furthermore, there is a minimal increases in quantity demanded. Probably the best example of a market with almost perfect competition we can find in reality is the stock market. Monopoly price is higher than Perfect Competitive Price: Under Perfect Competition, price equals marginal cost, while under Monopoly price exceeds marginal cost. Oligopoly: A firm under oligopoly follows the policy of price rigidity. The monopoly firm has either amassed extensive strength to take over the whole industry or possess the patents on the production of specific products produced by the monopoly firm. This is what causes the high competitiveness in this type of market. If one fruit stand raises the price, then no one will go there anymore because it's cheaper somewhere else.
Following are some of the major differences between these two market structures: Market Size and Control The main difference between both the market structures is a relative size and market control of these firms on the basis of a number of competitors in a particular market. Furthermore, oligopolistic market structure boasts of price rigidity. The desire by each of the firms in oligopolistic markets to know the actions of each other in advance on certain occurrences encourages collusion among firms in oligopoly markets. It is a competition among few big sellers each one of them selling either homogenous or differentiated products. The first feature is the interdependence trait. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political.
There is no equal income at all negative externalities such as pollution. The firms in oligopoly market also defensive weapons that are used to gain a larger share of the market as well as experience a maximization of sales in the market. Therefore, they are often regulated by the government. Perfect Competition vs Oligopoly Competition is very common and oftentimes very aggressive in a free market place where a large number of buyers and sellers interact with one another. The actions by individual firms do not affect the market as there are many other firms in the same market.