Monopolistic and Oligopoly Market Structures

Monopoly is a type of market structure in which there is only one seller controlling the whole industry of a certain offspring that does not have a close substitute.

Monopoly vs Oligopoly

Monopoly Market Characteristics

One characteristic of a monopoly rialto structure is in the fact that the market dominated by the monopoly is the exact opposite of a competitive rialto, where there are many competitors offering standardized offsprings for sale.On the monopoly market, there is no competition, there is only one manufacturer offering a unique product. This allows the seller to assign to the monopolist an arbitrary price, which ensures his maximum profit. The law of demand does not work. The appetite of a monopolist is limited only by the share of income that he will be able to wrest from the purse of the hunted consumer.

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Monopoly rialto is characterized by a special market situation. This is complete freedom of action for one and the lack of freedom of choice for everyone else.

Monopoly rialto has a limited number of participants: either one producer (seller) – a monopoly; or one consumer (buyer) is a monopsony. As a monopsony, a large processing company usually acts. For example, it can be the largest metallurgical combine in the region for many small coal mines, the largest meat factory for a variety of farms specializing in the cultivation of cattle.On the monopoly market there are:

  1. a) monopolistically high prices established by a monopoly, as the sole manufacturer and seller of the finished product;
  2. b) monopoly-low prices set by monopsony, as the sole buyer of raw materials.

For all other rialto participants, there may be “price scissors” when one farm (domestic or farm) falls into a situation of monopolistically high and monopolistically low prices.

For example, a farm buys electricity or computers at monopoly-high prices, and sells its livestock, grain or grapes at monopoly-low prices. The offspring on the monopoly market can be either differentiated (diverse in terms of assortment), or the same (standard and limited in assortment). But in any case, there are no substitute goods.The monopoly rialto means the inability of other companies to enter the industry, creating special barriers to obstacles. Among such barriers, the scale effect plays a leading role. In certain industries, efficiency can only be achieved by large enterprises, which are practically impossible to displace by other producers.  The offspring of small manufacturers-competitors will be uncompetitive for the costs of its production.

And even large companies can not make a worthy competition without a specific production base: equipment, technology, patents.

Negative Features of Monopoly

monopolistic market reduces the standard of living (because the consumer is forced to pay inflated prices while reducing other costs), reduces the quality of goods (limited supply makes the buyer less finicky), reduces the economic efficiency of production (monopolies do not care about cost savings, as everything will be paid by the consumer ). In other words, there is no need to worry only about the price reduction (as in the rialto of imperfect competition), but also about the quality of the offspring (as in the market of oligopolistic competition). This is one of the difference between monopoly and oligopoly.

Conditions for the Emergence of a Monopoly Market and Competition

The monopoly rialto arises mainly as a result of the merger of crews that prefer the serene life of a monopolist with guaranteed incomes to a constant risk in a competitive struggle. There are, however, also such monopoly markets, the origin of which is natural or expedient in nature. The natural monopoly rialto reflects, as a rule, the uniqueness of the natural resources of the country, region, city (gold deposits, precious stones, oil, or citrus, or resort conditions); copyright is a kind of monopoly.

Appropriate monopoly markets arise where a large number of producers would reduce economic efficiency (for example, supplying the population with electricity, gas, water, telephone lines, transport links, etc.).In most countries, anti-rialto monopolies are pursued by the state under the “antitrust law”: the first such law was passed in the United States in 1890 and is known by the author’s name (“Sherman’s law”); any actions of producers that restrict freedom of trade are prohibited. A firm recognized as a monopoly pays higher taxes, often it is forced to transform into several independent crews.Monopoly often does not allow even the appearance of an opponent. And for this, dumping, unfair advertising, pressure on resource providers and banks to restrict rivals in resources; enticement of leading specialists; industrial espionage; interception of profitable government orders are used. It should be noted that the legislation of many countries dumping is prohibited.

However, in practice, it is difficult to distinguish between dumping and a natural decrease in prices, as a result of lower production costs. Cartels are prohibited as a form of monopoly associations. But cartel-type conspiracies can be carried out secretly and have no legal documents.It should be noted that in the conditions of the monopoly market, for example, there is potential competition – the possibility of new manufacturers appearing in the industry. If there is no legal prohibition to engage in this type of activity, the appearance of a competitor is always possible.  The threat may arise from a small venture company that has developed an improved version of the product. This is a competition of innovations.

Therefore, the monopolist is forced to engage in a qualitative transformation of its goods and the introduction of new economic methods of production, with a subsequent decline in rialto prices. However, this is rather a potential possibility of competition, rather than competition itself. Practice convincingly proves that monopolies that have grown out of competition transform the competition itself and even completely suppress it. In order to protect competition and limit monopolies, the state is used as an effective legislative subject of the market. As a result, the third type of rialto is formed – the mixed market.

Oligopoly Market and Its Features

Oligopoly markets form the basis of the economy of any industrially developed country since they are inherent in industries with the maximum innovative and investment potential: automotive, aircraft, chemical industry. This type of rialto takes an intermediate position in its properties between purely monopolistic and monopolist-competitive markets.

Oligopolies can be either differentiated or homogeneous in terms of the characteristics of the offsprings.Its distinctive features are:

  • A small number of crews on the rialto. For example, taking into account the international or intersectoral competition of crews producing substitute offsprings, significantly adjusts the scale of the power of an individual firm in the oligopolistic market towards its reduction.
  • One characteristic of an oligopoly market structure is in the fact that this rialto is quite diverse. Usually two main types are distinguished: a rigid oligopoly (in which 3-4 crews occupy the whole market of this product) and a soft, diffuse, loose oligopoly (in which the industry has a core of 6-7 largest crews occupying up to 80% of the rialto and a lot of other crews of “competitive environment” that work with the remaining industry demand). So it is possible to speak about the ease of entry in an oligopoly in the framework of the rest 20%.
  • From the small number of crews in the oligopoly environment, the problem of mutual influence of crews on each other follows.

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