Monopoly and oligopoly: differences

The economic markets they are an important part of today's societies. The law of supply and demand must drive these economic markets, but in some situations other factors affect the market. Due to the importance that the economy currently has in our world, today in this lesson from a PROFESSOR we are going to talk about the differences between monopoly and oligopoly.

A monopolyis a market failure, an imperfect market form in which a company is the only provider of a good or service. Because of this, people who want to get this good can only go to a seller to get it, so the supplier can modify the price as he wants or produce the desired quantity of the product, since there is no competition possible.

The word monopoly comes from the Greek, from the words "monkey" and "polein", which mean respectively only Y to sell, its meaning being that of a market in which only sell one. The monopoly can be "good" when it is a voluntary, democratically elected monopoly.

To understand the differences between monopoly and oligopoly, we must first talk about the monopoly characteristics, which are:

• A single company produces the good or product.
• There are no substitute services or goods.
• There is great demand, which could lead to more companies producing the good.
• The supplier can set the price.
• There are a number of barriers to entry into the market.

Causes of monopoly

On the other hand, to understand the monopoly we must also know the causes that cause it, which are the following:

• When only one supplier can produce the product, making it impossible for other companies to produce it.
• The patent of the product is owned by a single company, being the only one with the permission to produce it.
• A state controls production, the state being the only one that can produce it, or that only gives permission for its production to a company.

An oligopoly is a form of market characterized by the fact that the market is controlled by a small number of entrepreneurs. This control reduces the number of competitors and increases the price of the products. The word oligopoly comes from the Greek, from the words "oligo" and "polio", which mean "few" and "seller" respectively.

In an oligopoly there is no competition, since only a few companies participate in the production of the product, which completely control the market. This environment has a series of characteristics, among which are the following:

• Entrepreneurs set the price, since they are the only producers of the good or service.
• There are very large entry barriers to the market, such as patents or licenses given by the government.
• There is a great dependence between the companies that form the oligopoly. Sometimes there is a collusive behavior, in which companies act together to manage the market.
• The sellers' decisions affect the rest of the companies that make up the oligopoly.

Causes of oligopoly

To understand oligopoly, it is also important to understand the causes that cause this economic phenomenon, among which are the following:

• Economies of scale.
• The elimination of weak economic rivals.
• The benefits that companies achieve by joining each other, or having a helping relationship.
• The creation of new barriers advertising and marketing.

To conclude with this lesson we must talk about the differences that exist between the concepts of monopoly and oligopoly.

In the monopoly there is only one selling company, the only one that has the capacity to produce the good or service. The oligopoly there are few companies, but not just one. This causes that the monopoly the company can modify the price at will, but in the oligopoly it is not can change so easily, although companies still have a lot of influence on the variation of the price.

An important difference is that of relationships with other companies, a very relevant factor in the oligopoly, but that does not exist in the monopoly because there is only one company.

Both have similarities, such as the existence of a series of entry and exit barriers or that the product does not have any substitute good. An important similarity is that neither of the two is frowned upon, with both monopoly and oligopoly being market problems.