They are diverse in the form, in the design, in the colour, in the flavour, packing etc. In an oligopolistic market, a firm has to rely on other firms for taking decisions regarding prices because the slightest change in the price of rivals may cause loss to the firm. Oligopolistic market is defined as a market that is dominated by few large firms, and that these firms are mutually dependent, where they have to monitor the actions of other competitors closely and act accordingly in response to that Ison and Wall, 2007. The firms are price makers, and so every firm has its own pricing policy, and thus the sellers are free to make decisions regarding the price and output, on the basis of the product. Whereas firms in an oligopoly are price makers, their control over the price is determined by the level of coordination among them. The main difference is that, in a perfectly competitive market place, the product is simpler and can be produced and sold by anyone; therefore there are fewer barriers to entry.
There is no problem with regards to selling under perfect competition since products are standardised and hence no selling costs. Now I explain that How in perfect comp. Perfectly competitive market places also have very low barriers to entry; any seller can enter the market place and start selling the product. This also means that such firms need to be aware of what other firms are doing differently from them, so that they can be ready to take competitive action if necessary. Monopolies, Oligopolies and the Economy Monopoly is a term to describe an industry where a seller of a product or service does not have a competitor offering a close substitute.
In monopolistic competition the competition is imperfect and many producers sell products that are s … lightly different and not perfect substitutes. Perfect competition and monopolistic competition are different to each other in that they describe completely different market scenarios that involve differences in prices, levels of competition, number of market players and types of goods sold. Otherwise, Perfect competition is the market struct … ure that have many small firms, and only sell the homogeneous products. There are also high barriers to entry to such a market place since most new firms may not have the capital, technology and existing firms will take actions to discourage any new entrants in fear of losing market share and profits. In an oligopolistic market, a firm has to rely on other firms for taking decisions regarding prices because the slightest change in the price of rivals may cause loss to the firm. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage. Monopoly Monopolies are unable to achieve any level of profit they want due to high prices that reduce consumer purchases.
The critical feature is that there are so many buyers and sellers that each buyer and se … ller assumes that their behavior will have no impact on the final market clearing price. In a monopoly market, there is no competition and so the monopolist overcharges the prices of products. There are two extreme forms of market structure: monopoly and, its opposite, perfect competition. The price maximization condition of the competitive market is marginal cost equals marginal revenue. In an oligopoly, there are only a few firms that make up an industry. Perfect competition is a theoretical market structure.
Each and every firm of the industry, closely observes the moves and actions of the competitors to plan its steps according to the behavior of its rivals. This is also true under monopolistic competition. These firms target bigger markets, at regional, national and even international level. Understanding each structure is very important for a business and even for a consumer in order to take their strategic decisions successfully. And Monopoly also have very high barriers entry and its impossible to entry. A small number of firms dominate the industry.
These types of competition include: Perfect competition, imperfect competition, oligopoly, and monopoly. The benefits of going first or second are known as the first mover and second mover advantage. This condition is true during the long period only. In perfect competition, firms are numerous and small, ensuring that no one firm has control over pricing. This approach of breaking down a problem has been appreciated by majority of our students for learning Similarities, Dissimilarities concepts.
Monopolistic competition involves slightly differentiated products while monopoly involves a single product. A market structure, where there are numerous sellers, selling close substitute goods to the buyers, is monopolistic competition. They are incurred to influence a purchaser to buy one commodity in choice to other. You go out of business. Oligopoly, on the other hand, is a market condition where numerous sellers co-exist in the market place. The seller here has the power to influence market prices and decisions.
Another characteristics of an oligopoly is interdependence, this is when the actions of one large firm will directly affect another large firm of the same market. However, economists look at the bigger picture, and so, they are always in pursuit of evaluating wider trends so as to understand the factors that motivate consumers to know how this information will impact a large segment of the population. A good example of an oligopolistic market place would be the gas industry where a few number of sellers offer the same product to a large number of buyers. It is primarily used as a benchmark against which other market structures are compared. Characteristics of monopolistic competitive markets: There are many producers and many consumers in a given market, and no business has total control over the market price. It entails that a firm will have to reduce the price of its product to increase its sales by attracting some customers of its competitors, provided latter do not reduce their prices. Oligopoly firms might compete noncooperative oligopoly or cooperate cooperative oligopoly in the marketplace.
Customers purchasing goods that come from perfect competition find no differences at all in the products produced by all the different manufacturers. In the short run, entry or exit is ruled out in both these market forms. As a result, a higher price for the product is charged and a lower output is produced. If one seller wants to attract the customer by lowering the price ie 10 to 8, so he will bring losses in the firm because if he purchase the product in Rs8 so how he sell the product in that rate. Thus, prices are influenced by forces such as supply and demand. Monopolistic Competition On the other hand, in a monopolistic competition, the structure contains a large number of small firms that can exercise a freedom of entry and exit. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry.
One source, in the references, says monopolies can be created by governments more than private companies. Differences between Monopoly and Monopolistic Competition Monopoly Monopolistic Competition Single seller: In a monopoly, there is one seller of the good that produces all the output. Pfizer, for instance, had a patent on Viagra. In an oligopoly, there are only few firms operating in the market and so, the sellers are influced by the acrivities of other sellers. A real world example that is close to this is the market for farm commodities, such as wheat or soybeans.