MONOPOLY
buyers and sellers
MONOPOLY is a market structure
where in there’s only ONE seller, in
short there are no rivals since there is
only one seller.
In the long run, even monopoly
profit is DRIVEN TO ZERO, because
even if monopoly firms can earn
positive profit for a longer period of
time than competitive firms, but
entry of competing firms will
gradually take away their profit
and thus results to zero.
A monopolist is a PRICE SEARCHER
PRICE SEARCHER, because they
have this ability to control to some
degree the price of the
product/service it sells. Thus unlike
price takers, they can raise their
prices and still sell those
products/services--- although it will
not sell as many units as at the
lower price
The original meaning of the word
“monopoly” was An exclusive right
to sell something.
COMPETITION
is the rivalry between companies
selling similar products and
services with the goal of
achieving revenue, profit, and
market share growth.
 MARKET SYSTEMS
 Monopoly- one producer,
absence of competition
 Oligopoly- small number of
firms, none of which can keep
the other from having
significant influence
 Perfect Competition- infinite
 Monopolistic Competition-
numerous competitors exist in
the market
=Types of business competition
 COST-A producer with a lower
unit cost can choose to
compete on price to drive
competition out of the market.
Alternatively, a producer with
lower costs can invest in their
business to create superior
products and customer
service.
 BRAND AWARENESS-
Customers tend to choose
products and services they
know or that they recognize.
As such,establishing and
sustaining brand awareness is
a basic type of competition.
 SALES-A sales force that can
close sales can be a
significant competitive
advantage in industries such
as business-to-business
services.
 LOCATION-Location-based
competition such as the only
coffee shop at an airport.
 TECHNOLOGIES AND
STANDARD-Competition to
establish a technology or
standard. For instance,
competition betwen electirc
and hydrogen powered cars.
 REPUTATION-A firm's reputation
in areas such as reliability,
quality, and sustainability can
 also be a competitive factor
or agent in the markets.
 PRODUCT AND SERVICE-The
features and quality of
products and services. For
example, solar panels that
have a higher energy
conversion rate may be
preferred by customers.
 CUSTOMER EXPERIENCE-The
intangible elements of
products and services such as
diligent customer service (e.g.,
hotels).
 Similar products and services
typically complete intensely in
price. Firms with superior
products and services in the
eyes of customers may be
able to charge premium
prices.
 PRICE-Similar products and
services typically complete
intensely in price. Firms with
superior products and services
in the eyes of customers may
be able to charge premium
prices.
=TYPES OF COMPETITORS
 Replacement
a firm that sells products and
services that are in a different
industry and that could be used
as a substitute for your products.
For example, a restaurant and a
supermarket in the same day.
=Competitive advantages
Determinants of competitive
advantages
• Target market
• Competitor
• Unique selling proposition
MONOPOLISTIC COMPETITION
 Monopolistic competition
characterizes an industry in
which many firms offer
products or services that are
similar, but not perfect
substitutes. Barriers to entry
and exit in a monopolistic
competitive industry are low,
and the decisions of any one
firm do not directly affect
those of its competitors.
 FEATURES

 Direct Competitor

is a firm that sells the same

products and services in the
same market

 Indirect Competitor

a firm that sells different

categories of products and
services but are in the same  ADVANTAGES
industry and same markets. For
example, a cafe and a restaurant  There are no significant
in the same city are indirect barriers to entry; therefore
competitors.
 markets are relatively
contestable.
 Differentiation creates
diversity, choice and utility.
 The market is more efficient
than monopoly but less
efficient than perfect
competition - less allocatively
and less productively efficient.
However, they may be
dynamically efficient,
innovative in terms of new
production processes or new
products.
 DISADVANTAGES
 Some differentiation does not
create utility but generates
unnecessary waste, such as
excess packaging. Advertising
may also be considered
wasteful, though most is
informative rather than
persuasive.
 There is allocative inefficiency
in both the long and short run.
This is because price is above
marginal cost in both cases. In
long ruin the firm is less
allocatively inefficient, but it is
still inefficient.
OLIGOPOLY
History and background
The word Oligopoly is derived
from two Greek words:
OLIGI meaning few
POLEIN meaning to sell
An Oligopoly market situation is
also called competition among
the few.
• Dominated by a few firms
• Sells homogeneous OR
differentiated products
• Every seller influences the
behavior of the other firms
and other firms influence it
Characteristics
• Few firms
Exact number of firms is
undefined
There is a severe competition
since each firm produces a
significant portion of the total
output.
• Barriers to Entry
There are barriers to entry like
patents, licenses, control over
crucial raw materials, etc.
Can earn super-normal profits
in the long run with the
presence of the barriers of
entry.
These barriers prevent the
entry of new firms into
the industry.
• Non-price Competition
Firms try to avoid price
competition due to the fear of
price wars
Depends on non-price
methods like advertising, after
sales services, warranties, etc.
Ensures that firms can
influence demand and build
brand recognition.
• Interdependence
There is a lot of
interdependence among firms
in an oligopoly
Each firm is affected by the
price and output decisions of
rival firms.
A firm takes into account the
action and reaction of its
competing firms while
determining its price and
output levels.
• Nature of the Product
Either homogeneous OR
differentiated.
• Selling Cost
Selling costs are highly
important for competing
against rival firms for a larger
market share.
• No uniqueness pattern of
pricing behavior
Predicting the pattern of
pricing behavior among firms
is IMPOSSIBLE.
Some wants to act
independently and earn
maximum profits and some
also wants to cooperate with
rivals to remove uncertainty.
Firms can compete OR
collude with other firms which
can lead to different
pricing situations.
• Indeterminateness of the
Demand Curve
It is IMPOSSIBLE to determine
the demand curve of a firm
because:
– there is a huge
interdependence
among rivals
– there is uncertainty
regarding the reaction
of the rivals
rivals can react in different ways
when a firm changes its price and
that makes the demand curve
indeterminate
ADVANTAGES
• They may adopt a highly
competitive strategy, in which
case they can generate
similar benefits to more
competitive market structures,
such as lower prices.
• May be dynamically efficient
in terms of innovation, new
product and process
development. The super-
normal profits they generate
may be used to innovate, in
which case the consumer may
gain.
• Price stability may bring
advantages to consumers
and the macro-economy
because it helps consumers
plan ahead and stabilizes their
expenditure, which may help
stabilize the trade cycle.
DISADVANTAGES
• High concentration reduces
consumer choice.
• Cartel-like behavior reduces
competition and can lead to
• higher prices and reduced output.

• Given the lack of competition, oligopolists may be free to engage in the

manipulation of consumer decision making.

• Firms can be prevented from entering a market because of

deliberate barriers to entry.

• There is a potential loss of economic welfare.

• Oligopolists may be allocatively and productively inefficient.