Differences Between Monopoly and Oligopoly
The difference between monopoly and oligopoly, the two types of market structures, lies in the level of dominance an entity has in the market. In a monopoly market, a single seller dominates the market and has the ultimate power to control the market prices and decisions. On the other hand, in an oligopoly market, there are multiple sellers.
In a monopoly, customers have limited choices and the level of competition is less as one entity rules over all being the only provider of that product or service. On the contrary, in an oligopoly, there is a huge and never-ending competition that makes entities offer the best to stand out.
Table of contents
Monopoly vs Oligopoly – Comparative Table
|This market structure is a high barrier to entry and exit as the industry is generally capital-intensive. There are also economic, institutional, or legal restrictions on this kind of industry.
|A market structure where numerous sellers sell close substitutes of the goods. Large industries generally dominate the market.
|The seller controls the price as there is no competition in the market.
|The competition in the market determines the price and keeps in mind the competitor’s actions.
|This market structure is a high barrier to entry and exit as the industry is generally capital intensive. There are also economic, institutional, or legal restrictions on this kind of industry.
|In this market structure, the barrier of entry is generally high because of the economies of scale in the industry.
|A firm is a price maker.
|A firm is a price taker.
|The demand curve of the market is kinked.
|The demand curve of the market is downward-sloping.
|Electricity, railways, and water are examples of the monopoly market.
|FMCG and automobiles are examples of an oligopoly industry.
|No competition exists as there is a single seller of the goods.
|Intense or high competition among the sellers.
What Is Monopoly?
A monopoly is a market arrangement where there is an entity, which is either the only provider of a particular product or service. Hence, it is the most dominant player in the market as customers requiring that item directly approach them without having any other brand to go to.
As such market players know that they are the only option for the customers in the region to reach out to, they determine the prices of the products per their suitability without having anyone around to question or protest against the pricing decisions taken.
Moreover, customers have no choice but to buy from them as they are the only brand available to them for that product. In short, the seller is the sole provider of goods or services in that market. The seller has the power to influence the price of the goods, and there are a lot of buyers in need of that good.
What Is Oligopoly?
An oligopolyOligopolyAn oligopoly in economics refers to a market structure comprising multiple big companies that dominate a particular sector through restrictive trade practices, such as collusion and market sharing. Oligopolists seek to maximize market profits while minimizing market competition through non-price competition and product differentiation. is a market structure where few sellers (more than one and may be less than ten) sell products of the same category without much differentiation. The differentiation is only about the making of the product or its packaging. In this type of market, there is intense competition among the players. The buyers have the choice to choose the identical alternative of the product among the ones available on the market.
So far as the pricing aspect for such goods is concerned, the entities have to be careful as keeping the prices of the products lenient is important. If the prices are too high, consumers may switch to other brands. In addition, the quality of the products is also an important factor. If the quality is compromised, no matter how cheap the product is, consumers won’t choose it. Hence, quality and pricing must be per market standards.
In short, oligopoly is all about survival of the fittest in terms of both quality and prices.
Monopoly vs Oligopoly – Infographic
Monopoly vs Oligopoly – Key Differences
- There is a single seller of goods in the market in a monopoly. In an oligopoly, there are few sellers in the market.
- There is no competition among the sellers in a monopoly as they are the only ones in the market. In contrast, there are few sellers in the market in an oligopoly, and there is intense competition.
- In an oligopoly, the customer has various product choices and is mainly driven by the price, customer preference, and brand loyalty. In contrast, the customer has no option or alternative to pick among the goods in a monopoly.
- In an oligopoly, the demand curveDemand CurveDemand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. That means higher the price, lower the demand. It determines the law of demand i.e. as the price increases, demand decreases keeping all other things equal. of the market is kinked. While, in a monopoly, the demand curve is downward sloping.
- In the long run, in an oligopoly market structure, the seller ends up making the normal profitNormal ProfitThe term "normal profit" is used when the profit is zero after accounting for both the implicit and explicit expenses, as well as the overall opportunity costs. It happens when all of the resources have been used to their full potential and cannot be put to better use. in the industry as any change in the price will be counter-set by the subsequent fall in the cost of the rival firm. Whereas, in the case of monopoly, there is a possibility that the seller can earn abnormal profitsProfitsProfit refers to the earnings that an individual or business takes home after all the costs are paid. In economics, the term is associated with monetary gains. in the long run.
- The price set by the monopoly is generally controlled or monitored by the government to protect the customers’ interests. For example, electricity is an example of a monopoly marketExample Of A Monopoly MarketMonopoly is the “one-&-only” seller of a good or service in the market & it faces no competition from any other entity. Generally, it is controlled or monitored by the Government to safeguard the customers’ interests. where there is only one producer of goods. On the other hand, oligopoly is driven by private players in the market. For example, a brand of toothpaste has many closely related substitutes, which is an example of an oligopoly market.
Now that the differences have been mentioned in detail, the similarities too need to be listed. Given below are the similarities that a monopoly and oligopoly share. Let us have a quick look at them:
- Both monopoly and oligopoly are examples of imperfect competition, given the former is the only firm providing a product or service, and the latter is less in number so far as offering similar products with not much difference. The level of competition is zero for a monopoly, while too intense for an oligopoly. Hence, it’s not a fair competition in either case.
- Both monopoly and oligopoly are linked to large organizations or brands and they have significant market control over the products and services they deal with.
- Increased production, however, affects the market structure negatively. This is because more production leads to a decrease in the price of the same.
- Both the marketplaces ensure having copyrights for the products and services they offer.
- Both have control over the pricing of the products as they either have no or very limited competition.
This article is a guide to what is Monopoly vs Oligopoly. We explain the differences using a comparative table & infographics and discuss their similarities. You may also have a look at the following articles: –