Question

List the conditions that define the following market structures: a) Monopolistic competition b) Oligopoly

Answer 1

a. Monopolistic rivalry is typical of an industry in which many companies offer identical, but not perfect, products or services. There are low barriers to entry and exit in a competitive monopoly market, and any firm's decisions do not directly affect those of its rivals. Monopoly rivalry is closely linked to the product differentiation business strategy A monopolistically competitive market is characterized by three factors. Second, there are many companies on the market, none of which are big. Second, there is free market entry and exit; there are no entry or exit barriers. Third, a differentiated product is produced by each company on the market. This last condition is what makes a distinction between monopoly competition and perfect competition. Types of competing monopoly firms include restaurants, retail clothing shops, and gas stations.

b. Oligopoly is the least understood form of the market; thus, it does not have a clear, unified theory. Nonetheless, there is some consensus on what constitutes a market that is oligopolistic. Three criteria have been established for oligopoly. First, there are only a few large firms in an oligopolistic industry. This condition distinguishes between oligopoly and monopoly, where there is only one company. Second, there are high barriers to entry in an oligopolistic market. This situation distinguishes between oligopoly and ideal competition and monopoly competition in which there are no entry barriers. Third, oligopolistic companies may produce products that are either differentiated or homogeneous. Types of oligopolistic companies include manufacturers of cars, oil producers, metal producers, and passenger airlines.