Monopoly and Oligopoly: A Comparative Analysis

MONOPOLY AND
OLIGOPOLY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
a. Monopoly.................................................................................................................................3
b. Oligopoly.................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Market powers is the ability of the firm for rising and maintain the price about such level
which helps in prevailing under competition, This results in reduced output and loss of financial
welfare. The report will shed light on the difference between monopoly and oligopoly and will
highlight it through various examples and graphical presentations. Various theories will be used
to signify their impact on the companies and the industry.
a. Monopoly
A monopoly is when an individual company produces the goods and there are no closed
substitutes of it. This exists in those areas where a company is the one and only dominant
company or force for selling particular product or service in the industry. This power gives the
company more than enough power which helps it in keeping the competitors away from the
emerging market as it gives high barriers to the entry which include the factors such a
technology, government regulation, steep capital requirements, high distribution costs or the
patents. Some companies strive hard to establish the monopoly because once it is established,
there is lack of competition and the company can increase its prices. This is why, these
companies are considered as the policy makers as they can change the price anytime because it
reduces the choices for the buyers (Alam, Parvin and Roslan, 2020). The aim behind this is also
to benefit the customers and the government also supports it.
Monopoly is raised when there are no close substitutes and there are barriers to the entry in
the same market regarding the product and services. Barriers of entry describes that there is
something which helps the company in protecting it from the arriving of new competitors. This is
basically of two types: Natural and Legal. Natural barriers to entry or the natural monopoly
exists when the goods from one company sold at lower process can meet the demands of the
whole community by using a technology.
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Figure 1: Monopoly and how it arises
Source: Monopoly and how it arises, 2020
The second one is the legal barriers to entry or the legal monopoly which exists when a company
or a firm has the ability to create and develop its own barrier to entry through buying the
significant portion of any natural resource. In this, the entry or the competition are restricted by
taking the ownership of the natural resource or can also be done by granting itself as the public
franchise, patent, government license or copyright.
Public franchise is that which has the exclusive right granted for supplying the particular service
or good. Patent is also the same but it is given to inventor of service or product. Copyright also
gives the exclusive right but to the composer or the author of any work like literature, music or
drama or any artistic work.
There are also price-setting strategies for the monopoly which means there is a trade-off faced
between the quantity sold and price. In order to sell larger quantity of any good, the company has
to lower its prices. These can be done by single price or price discrimination (Wang and
Werning, 2020).
Single-price monopoly is basically a company or a firm which sells each output unit at the same
price to the consumers or the customers. Tesco which is the largest market leader of supermarket
in the retailer industry of UK also follows the single price monopoly. On the other hand, price
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