Question

Similarities and differences in Oligopoly and monopoly markets

Answer 1

Monopoly is a form of market with a single seller who sold goods which does not have close substitutes. There are barrier in the entry of new firms. The firm is a price maker because it determines the price for its product. Firm has free control over the supply of the product. A monopolist firm faces a market demand curve which is negatively sloped. Demand curve of a firm under monopoly is less elastic because the product has no close substitutes. Railways is an example of monopoly industry in India.

Oligopoly is a market structure with few large firms who produces homogeneous or differentiated products intensely competing against each other. There is interdependence of firms in decision-making. Under this form of market, prices are normally rigid as firms are afraid of immediate reactions of the rival firms which may start price war. The demand curve facing an oligopoly firm is indeterminate because of high degree of interdependence among oligopolistic firms. Example: Auto-producers in the Indian market; Hyundai, Honda, Tata, Ford are some well-known brand names.

Similarities of Oligopoly and Monopoly markets;

1) There are barriers in the entry of new firms in oligopoly and monopoly market.

2) Control over price of the good.

Difference between Oligopoly and Monopoly markets;

1) There is only single firm under monopoly while in oligopoly, there are few firms.

2) There is interdependence of firms in oligopoly which is not feature under monopoly.