Monopolistic Competition and Oligopoly Markets

Didi DANADYAKSA
[COMPANY NAME] [Company address]
[DOCUMENT TITLE]

Topic: Monopolistic competition and Oligopoly markets
Executive summary
Market structure of a particular industry specifies a particular condition which must be in the
market. Ease of entry in the market, number of companies, a form of competition and
uniformity of inter-company products are main elements of market structure. This report aims
to investigate the concept of monopolistic competition and oligopoly market with the use of
case study examples. In this report, the monopolistic competition market structure of
Indonesian banking industry has been examined on the basis of the Panzas and Rosse model.
In this model, the operational activities of the banking industry require 3 types of input such
as finance, physical capital, and labour for achieving maximum profit. The findings of this
research showed that the nature of marketing structure of Indonesian banking industry is
monopolistic as there is no barrier for participants to start new bank branches and they offer
differentiable services/products to their customers. In the next section of this report, the
behaviour of oligopoly market has been investigated in context to the Indian telecom
industry. It has observed that the oligopoly market structure of Indian Telcom industry has
been disrupting by Reliance Jio when it kills the competition in the industry by offering
telecommunication services at an astonishingly cheap rate.
Introduction
Market structure can be defined as the degree and nature of competition for services and
goods in the market. Economies of scale, conditions of entry into and exit from the market,
nature of the product, nature, and a number of buyers/sellers are the main determinants of
market structure. The market structure can be classified into five categories on the basis of
competition such as perfect competition, monopoly, oligopoly, monopolistic competition, and
duopoly. The main purpose of this research report is to examine the Oligopoly markets and
Monopolistic competition by using real-time examples of the particular market industry.
Monopolistic competition refers to an imperfect competition where many of the firms are
selling goods and services which have been differentiated from one another in terms of
quality and pricing. On the other hand, in the oligopoly market structure, there are few large-
scale organizations who are selling differentiated or homogeneous products and services.
Both oligopoly and monopoly market structures provide business organizations with
advantages of assured revenue. Oligopolistic business organizations should optimize their
outputs rather than enjoying the assured profits because oligopolistic markets are bound to
exist in all national economies (Gaol and Yusuf, 2018). In the first section of this report, the

concept of monopolistic competition has been examined in the context of the Indonesian
banking industry. The next section of this report outlines the concept of oligopoly market in
context to the Indian telecom industry. The last section of this report summarized the key
findings of this conducted research.
Monopolistic competition market structure
The monopolistic competition market structure falls between a pure monopoly and perfect
competition market structures (Abduh, 2017). It is imperfect competition market structure
where most of the business organizations are selling similar goods and services which are not
identical. All business organizations have been provided with a certain degree of market
power in the monopolistic competition market structure which allows them to charge their
consumers at higher prices. Free entry and exit, product differentiation and many sellers are
main attributes of monopolistic competition (Gaol and Yusuf, 2018). In this type of market
structure, a number of business organizations adjust until the value of economic profit is zero
(Božinović, 2011). In the following section, the concept of monopolistic market structure has
been examined in context to the Indonesian banking sector:
Indonesian banking sector
In 1988, there were only 104 private banks and 7 states banks in Indonesia. The banking
sector grew at a rapid rate between 1982-1992 due to regulations made by the government of
Indonesia (Arrawatia and Misra, 2012). In the current scenario, the branches of the banking
industry have been grown rapidly which leads to an increase in the price of production factor
and revenue. In the monopolistic competition market, there is no barrier or restriction for
firms to enter the business market. October 1988 Package offers a mild condition in terms of
forex transactions and establishment for the banking industry in Indonesia. At that time, the
investors have easily established their new banks in the market which results in rapid growth
in the banking sector (Gaol and Yusuf, 2018). According to the micro banking policy,
banking organizations are free to open new branches, differentiate their deposit products and
ease inter-bank lending. Moreover, Foreign investors are eligible for buying shares of a
banking organization in the stock market. The baking industry has been offered a broad range
of service and products to its customers. There is no doubt that the perspective of customers
is the same in context to all services/products, but the advantages of each product or service
are different. According to Boedi Armanto and Ratna Sri Widyastuti (2013), in the
monopolistic competition market, the revenue of firms should be increased with the increase
in production factor price such as wages of labour.