Differences between Monopoly and Oligopoly
Contents
Monopoly vs. Oligopoly
A monopoly and an oligopoly are market structures that describe the level of competition within an industry.[1] A monopoly is a market structure where a single company is the sole seller of a particular product or service, with no close substitutes.[2][3] In contrast, an oligopoly consists of a small number of relatively large firms that dominate an industry.[4][5] Both structures are forms of imperfect competition, where significant barriers to entry exist, preventing new companies from easily entering the market.
Comparison Table
| Category | Monopoly | Oligopoly |
|---|---|---|
| Number of Firms | A single firm controls the entire market. | A small number of large firms dominate the market. |
| Barriers to Entry | Very high, often due to legal restrictions, patents, or control of essential resources. | High, due to factors like economies of scale, brand loyalty, and high capital requirements.[4] |
| Market Power | The firm is a "price maker," with considerable control over the price of its product. | Firms have some control over pricing, but are interdependent; one firm's pricing decisions affect the others.[4] |
| Product Differentiation | The product is unique, with no close substitutes available.[2][3] | Products can be either homogenous (identical) or differentiated. |
| Competition | No direct competition. | Competition exists, often focusing on non-price factors like advertising and brand building. Firms may collude to limit competition. |
| Examples | Utility companies (water, electricity) in many regions, patent-protected drugs.[2] | The airline industry, automobile manufacturing, and smartphone operating systems (Android and iOS).[5] |
Interdependence in Oligopolies
A defining characteristic of an oligopoly is the interdependence of firms. Because the market is dominated by a few players, the actions of one company directly impact the others, forcing strategic decision-making. For instance, if one airline lowers its fares, others in the market are likely to follow suit to remain competitive, which can lead to price wars. This interdependence means that firms must anticipate the reactions of their rivals when making decisions about pricing, output, or advertising. In some cases, this can lead to collusion, where firms cooperate to set prices or production levels, acting similarly to a monopoly to maximize collective profits.[4]
References
- ↑ "wallstreetmojo.com". Retrieved December 02, 2025.
- ↑ 2.0 2.1 2.2 "economicfutures.ac.uk". Retrieved December 02, 2025.
- ↑ 3.0 3.1 "quora.com". Retrieved December 02, 2025.
- ↑ 4.0 4.1 4.2 4.3 "wikipedia.org". Retrieved December 02, 2025.
- ↑ 5.0 5.1 "helpfulprofessor.com". Retrieved December 02, 2025.
