Question

Define the characteristics of monopolies, oligopoly and monopolistic competition and
give an example for each market structure. Compare them on – the number of sellers,
market power or pricing decision, entry – exit barriers, differentiated or homogenous
product, the demand curve. Use examples to further support your answer

Answer 1

Monopoly

A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitutes.
In terms of the number of sellers and degree of competition, monopolies lie at the opposite end of the spectrum from perfect competition. In a monopoly, there’s only one seller in the market. They possess a high degree of market power. It has huge barriers to entry and exit. Also, the products are highly differentiated such that no other seller provides similar products. They face an inelastic downward sloping demand curve.

Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

Oligopoly
Oligopoly means few large sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. There is slight differentiation in terms of the products sold by each oligopolist.

Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge.

Monopolistic competition

In monopolistic competition, we have many sellers (as we had under perfect competition). However, they don’t sell identical products. Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose.

Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar.

Under monopolistic competition, companies have only limited control over price. There are low barriers to entry and exit. The demand curve is elastic and downward sloping.