In an oligopoly, a small group of firms controls prices and creates barriers for new entrants. Competitors' actions and reactions must be considered when setting prices to maintain profitability and stability. Conversely, a monopoly arises when one entity has significant control over a particular product or service.
The subsequent paragraphs examine both monopoly and oligopoly, highlighting their distinguishing features. Monopoly is identified by the absence of competition and substitute goods in the market, while oligopoly arises when a limited number of sellers offer a particular product or service. Oligopolies emerged concurrently with the inception of commerce.
The members of an oligopoly cannot control the accessibility and price of goods or services like a monopoly can, so they often become friendly competitors. Nowadays, multinational corporations make up the oligo
...poly, choosing specific service or product categories to dominate (Oligopoly Watch, 2007, n. p.). Opening a new market in a segment dominated by oligopolies is challenging. Over time, only two to four key players thrive in each category, and the smaller businesses that do well are often either pushed out or acquired by these dominant players (Oligopoly Watch, 2007, n. . ).
Oligopolies, such as Pepsi, Coke, and Cadbury-Schweppes, can be found in various sectors like steel production, consumer goods, and cars in industrialized countries. Monopoly has also been a frequent topic of discussion lately for large corporations. The government often regulates monopolies in financial institutions, transportation, utilities, and software. Monopolies can be categorized into two forms: pure monopoly and natural monopoly (Spark Notes, 2008). Pure monopoly occurs when a single supplier dominates the market without any competition. To qualify as a pure
monopoly firm, there should be no close alternative to its goods or services (Spark Notes, 2008). However, in reality, pure monopolies are rarely encountered. For example,, while a train company may be the sole provider at a specific station,, nearby taxicabs offering similar services provide an alternative option.
A natural monopoly refers to a firm with significant economies of scale, allowing it to produce more output at a lower cost compared to smaller competitors. This can be seen in industries such as software and utilities, where the average cost curve declines. Unlike competitive firms, monopolies are not influenced by market prices since they are the only provider in the market and face a downward sloping demand curve.
The monopoly has the freedom to determine its quantity and price based on market demand. In contrast, small oligopolies often go unnoticed by regulators while still generating significant profits. Monopolies, on the other hand, face consumer anger and government regulation due to their control over prices and product availability. Despite the advantages of oligopolies and disadvantages of monopolies, there are still multinational corporations that seek to become monopolies for profit and control.
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