Distinguishing Features of Monopoly
A monopoly market is characterized by a single seller and a large number of buyers. The monopolist enjoys absolute market power. This is because there is no close substitute for the product. There are a number of factors that make a monopolist retain her market power. First of all, the monopolist may have the ownership of some strategic input required for the production of the good. This prevents any other manufacturer to produce the good as it will not have access to the input. Secondly, the monopolist may have innovated a new product and has taken the patent for producing it. The patent right prohibits other firms to produce the same good. Thirdly, the firm might set up effective barriers to entry into the market through the limit pricing scheme. The firm that has already reached the optimum scale of operation can set the price to such a low level that any new entrant into the industry will face huge losses at that price as the initial cost of productions will be high at low scale of production.
Distinguishing Feature of Oligopoly
In an oligopoly market there are a few firms that produce similar or differentiated product. The most interesting feature of oligopoly is the strategic interdependence among the firms. The firms compete with each other to gain higher market share. Thus a move to gain market share by one firm will mean the fall in the share of another firm. The other firm will have to take a counter move to re-establish itself. In an oligopoly also there are entry barriers due the existence of economies of scale that can support only a few firms in the industry .
Example of Monopoly
The power supply company in any area is a monopolist in that area. Power distribution is a sector that exhibits scale economies and so it is a natural monopoly.
Example of Oligopoly
If we see the world market for crude oil we find that it has an oligopolistic structure. There are a few oil exporting countries and there is significantly large amount of strategic interdependence among the oil producers in the world.
Works Cited
Pindyck, Robert and Daniel Rubinfield. Microeconomics. 7th. Prentice Hall, 2009. English.
