The Differences between Monopoly and Oligopoly is given here. We can be used to hearing the terms monopoly and oligopoly, without knowing what aspects differentiate it. The term monopoly defines a market situation in which a seller of a product or service is the only one who exploits it. An oligopoly involves few market participants, but all are aware of the actions and prices of others because they have agreed to work together and dominate the market.
The term comes from the Greek monos and pōléin which means one and to sell respectively. It is a privilege or market failure where a single producer or service provider has great power in the market and is the only one that offers the good or service.
For a monopoly to occur, it is necessary that there is no other supplier of the good or service in the market, that is, there is no replacement and the consumer must necessarily buy from that supplier.
Whoever practices the monopoly controls production and price. That is, it first determines the rate of production that ensures the best profits, and then, using the demand curve, it determines the appropriate price.
An oligopoly is a market that is dominated by a small number of sellers. There are few participants in this market, so each one is well informed of the other’s actions and production. Due to this, the decisions of one company affect others, so a balance is sought between the oligopolists, eliminating competition in the market.
In the oligopoly, there are several companies in a specific market and they offer the same product or good. No company prevails over another because it would imply the appearance of a monopoly, so there is an apparent struggle between all without real competition.
This type of market causes negative effects since prices are high, quality is low, production is inferior and new suppliers cannot enter.
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Differences between Monopoly and Oligopoly
- The monopoly defines a market situation in which there is only one seller or supplier of a service or good.
- In an oligopoly, there are few participants in the market and therefore they enter into agreements with each other to dominate the market and prevent competition.
- A monopoly can arise when a company establishes control of several companies in the same sector to eliminate competition.