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Similarities and differences between monopolies and oligop

Economists have identified four types of competition—perfect competition, monopolistic competition, oligopoly, and monopoly. Monopolistic Competition In monopolistic competition Market in which many sellers supply differentiated products.

Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other.

Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch at least temporarily. How is product differentiation accomplished?

At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from another—and better than it. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price.

Oligopoly Oligopoly Market in which a few sellers supply a large portion of all the products sold in the marketplace. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge.

Compare and contrast the market structures of oligopoly and monopolistic competition.

You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions. Monopoly In terms of the number of sellers and degree of competition, monopolies lie at the opposite end of the spectrum from perfect competition.

How are oligopoly and monopolistic competition alike and how are they different?

In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly Market in which there is only one seller supplying products at regulated prices. There are few monopolies in the United States because the government limits them. Most fall into one of two categories: A legal monopoly Monopoly in which one seller supplies a product or technology to which it holds a patent.

Patents are issued for a limited time, generally twenty years.

Expert Answers

Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant-film technology.

Polaroid priced the product high enough to recoup, over time, the high cost of bringing it to market. Without competition, in other words, it enjoyed a monopolistic position in regard to pricing. Key Takeaways There are four types of competition in a free market system: Under monopolistic competition, many sellers offer differentiated products—products that differ slightly but serve similar purposes.

By making consumers aware of product differences, sellers exert some control over price. In an oligopoly, a few sellers supply a sizable portion of products in the market. They exert some control over price, but because their products are similar, when one company lowers prices, the others follow.

In a monopoly, there is only one seller in the market. The market could be a geographical area, such as a city or a regional area, and does not necessarily have to be an entire country. The single seller is able to control prices.

Similarities and differences between monopolies and oligopolies Essay

Most monopolies fall into one of two categories: Natural monopolies include public utilities, such as electricity and gas suppliers. A legal monopoly arises when a company receives a patent giving it exclusive use of an invented product or process for a limited time, generally twenty years.

Exercise Identify the four types of competition, explain the differences among them, and provide two examples of each. Use examples different from those given in the text.