Difference between Monopoly and Oligopoly

In a city, there is usually only 1 government hospital and few big private hospitals so that 1 government hospital can be regarded as monopoly while few big private hospitals can be regarded as the oligopoly. Monopoly and oligopoly are 2 forms of market structures having different characteristics, in order to understand about both the market structures let’s look at some of the differences between monopoly and oligopoly –

Differences between Monopoly and Oligopoly

Number of Sellers

Monopoly is that form of market structure in which there is the only single seller who produces the good or service while oligopoly is that form of market structure in which there are limited sellers who sell slightly differentiated products from each other.

Substitutes

In a case of monopoly, there is no substitute for the product sold by the seller whereas in a case of oligopoly there are substitutes for the goods sold by the company but they all sell slightly differentiated products from each other and not identical or homogeneous products which is the case with perfect competition.

Pricing Power

In the case of a monopoly, seller is the price maker and he or she charges high prices for the product sold by the company whereas in the case of oligopoly due to the presence of substitutes the seller cannot charge a higher price,however the seller has some pricing power due to the presence of differentiated product in the market.

Creation

Monopoly is created due to government regulation regarding the companies which can operate in the industry, high capital requirement, patents, trademarks and so on whereas oligopoly happens due to presence of economics of scale so a new firm cannot enter as cost of production by existing firms will be low due to large scale production is done by them and a small firm cannot compete with big firms due to price advantage enjoyed by the oligopoly firms.

Pricing Strategy

While in case of monopoly a company sets price on the basis of demand from the consumer so higher the demand higher will be the price charged by the seller from its buyers whereas in case of oligopoly apart from demand from buyers competitors pricing strategy also plays its part in deciding the price of the product by the oligopoly firms.

Quality of Product

In case of monopoly there is no incentive for the company to improve the product as company knows there is no competitor and hence the seller can sell the product at desired price to the customers whereas in case of oligopoly due to presence of differential products in the market the firm keeps reinventing the product by adding more features which in turn it gives consumers a choice as far selection of products is concerned and they can buy good quality products at reasonable prices.

As one can see from the above that both monopoly and oligopoly are different from each other while from company’s point of view it will prefer monopoly market structure whereas as far as buyers are concerned they will prefer oligopoly market structure over monopoly.

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