Oligopoly

Oligopoly refers to a market situation in which a small number of (3-10) large firms sell either identical goods or differentiated goods.

Features

1.   Few sellers

Under Oligopoly there are few sellers dealing in homogeneous or slightly differentiated products.

2.   Interdependence of firms

Under Oligopoly each firm controls a large share of the market and can influence the industry price and output.  Hence each firm takes into consideration the actions and reactions of other firms while determining its price and the level of output.

3.   Collusion or Group Behaviour

Under Oligopoly, collusion among firms is possible.  Hence each firm has monopoly power and may charge higher price.

4.   Price Rigidity

Under Oligopoly, price of a product tends to be rigid.  If any firm tries to reduce its price, the rival firms will retaliate by a higher reduction in their prices.  If any firm increases its price, the other firms will not follow the same.

5.   Advertisement

Under Oligopoly, each firm has to stick to its prevailing price.  So, it has to spend a lot on advertisements to increase its sales.

MONOPOLY

Monopoly refers to a market situation where a single seller controls the supply of a commodity which has no close substitutes.

Features

1.      Single seller: There is single seller for a product in the market.

2.     Absence of competition: Since there is a single seller in the market, there is absence of competition.

3.     No close substitutes:  The commodity sold by the monopolist doesn’t have any close substitutes.

4.     High barriers to entry: New firms cannot enter the market.  Monopolist has complete control over the supply in the market. Ex. Indian Railways.

5.     Price Maker:  The monopolist fixes the price of his product and has full control over price and output decisions.

6.     Perfect knowledge:  Monopolists have perfect knowledge about the market conditions, types of demand prevailing at different market segments and accordingly varies price of their products.

7.     Price discrimination or uniform price:  A monopolist firm can charge different prices for the same product to different buyers or may charge a uniform price.

8.     No difference between firm and industry: There is no difference between firm and an industry under Monopoly. It is a single firm industry.

9.     Super Normal Profits: Existence of Supernormal profits is common under monopoly as the market price is higher than the cost of production.

10. Nature of Demand curve:  The demand curve of a monopolist slopes downwards indicating that he can sell more at a lower price.

MONOPOLISTIC COMPETITION

Monopolistic competition is a form of market in which there are many sellers selling differentiated products.  Each seller has monopoly control over trade but faces stiff competition from rival sellers. Hence it is a combination of monopoly and competition. 

Features

1.    Large number of  Buyers and Sellers

There are fairly large number of buyers and sellers in the market.  The sellers are in a position to control the supply of goods and influence the price.

2.    Close substitutes

The products sold by the different sellers are very close substitutes.

3.   Product Differentiation

The Products sold by the sellers are differentiated from one another by the use of brands, labels, designs of packing etc.  Product differentiation may be real (use of different materials, design, colour etc) or imaginary (brand name, trademark etc).

4.    Selling Costs

The firms incur Selling costs.  Selling costs are those expenses of the producer (such as advertisement, attractive packing etc) incurred on marketing of goods produced.

5.    Free Entry and exit of firms

New firms can enter the industry and existing firms can leave the industry.

6.    Downward sloping demand curve

The demand curve of a firm under monopolistic competition slopes downwards to the right.  A reduction in price leads to increase in sales and vice-versa.

7.    Price maker

Each firm can fix the price for its products.

8.    Transport cost

The sellers incur transport cost in getting the goods to the market.

9.    Lack of perfect knowledge

The buyers and sellers in the monopolistic market do not have perfect knowledge of the market conditions and the prices prevailing in the market.