November 9, 2010

Monopoly vs. Oligopoly

Monopoly (or pure monopoly) and oligopoly are types of market from the sellers standpoint. The other types are  pure competition and monopolistic competition. In the real world, not one seller perfectly fits each of this classification. They may be a mixture of two or more classifications with one dominant characteristic associated with a specific market type.

 A pure monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to significantly influence  the terms on which other individuals shall have access to that product or service. The monopolist's product has no substitute hence there is no competition. An electric company can be example of a monopoly.  Another example is a water utility which is a sole provider of domestic water supply.

Oligopoly on the other hand exists where a few entities or small number of firms exert considerable influence over an industry.  The firms in the oligopolistic market  persistently  gains greater market share than what is expected under perfect competition. The firms compete with each other with product differentiation strategies including advertising, pricing strategies and differentiated customer service. Examples of oligopolistic markets are the automobile industry, wireless telecommunications industry and breakfast cereal industry.

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