The difference between monopoly and oligopoly causes a lot of confusion. While they both refer to a specific type of economic market structure, their implications should be well understood so that we can be able to tell the difference between the two.
In this article, I would like to take you with me through a deep and clear understanding of the difference between monopoly and oligopoly.
While we are still trying to use the simplest terms to explain these two broad concepts, we will try to be more specific in the usage of terms and definitions.
Below is the table of contents that will guide you through each point discussed in this article about monopoly and oligopoly.
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1. What is a monopoly:
There was a time, COCA-COLA was the only soda people could drink and that if you don’t drink it, there is nothing else for you.
This is referred to as a monopoly, which is an economic market for a specific product or service where there is only a single provider of that product or service within a specific market.
Let’s go back to our COCA-COLA example again as soda from a single provider, which let’s suppose is a government entity or a corporation product, where the company can dictate the price, quality or quantity which the end consumers, for the most part, need to accept it.
In Africa, there is a lot of such cases, where a single company has taken the whole market and no other company can compete.
Let’s take the example of RESIDESO , which is a public company for water distribution in the Democratic Republic of Congo, or Airtel in MALAWI…etc.
Even though in the eyes of the public, in many countries, monopolies are frowned upon and governments oppose them, behind closed doors many government actors are the main sponsors of those organizations that monopolize the market.
Also, in many countries, monopolies are genuinely frowned upon and governments actively oppose them.
Still in the democratic republic of congo, everybody was shocked one time in 2018.
There was a case where Pain Victoir, being the leading bakery in Kinshasa wanted to monopolize the bread business and was stopped by the government.
The reason why governments oppose monopolies is that they want to avoid situations where a company can dictate terms to people and charge far more than is justified for their product because there are no alternatives.
Still, we can notice that there are companies that have a monopoly in place simply because there is no other company that proposes the same kind of service.
We have noticed recently that the government plagued Google and Microsoft inquiries and actions were taken for their near-monopolies in their respective industries which were judged to be the result of being the leaders in their respective markets.
2. What is an oligopoly?
Well, again let’s go back to our COCA-COLA example, this time let’s join our friend PEPSI.
The game was singular and COCA-COLA was winning the day, until BOOM!!! PEPSI showed up with its amazingly competitive properties.
An oligopoly refers to an economic market where there are a small number of players, be they government or corporations, which dominate the industry.
While in some industries this is sufficient to still keep a competitive environment, where each is seeking to beat the others, there is a risk that the limited number of players will collide.
We could say that this is a competition, we would not be wrong. But in a microeconomy, the first substitute that comes to mind is not even iPhone Vs Samsung but COCA-COLA and PEPSI.
Before we go any further, let’s define the term ” Oligopoly”. It is a market structure where a few firms dominate.
We talk about oligopoly when a market is shared between a few firms, in this case, it is said to be highly concentrated.
In an oligopoly, although only a few firms dominate, it is possible that many small firms may also operate in the market in our case, COCA-COLA and PEPSI.
Since these two essentially taste the same and have similar pricing, we would expect that demand for both products to be similar.
However, until recently, the market share for Coca-cola and Pepsi has heavily favored Coca-cola in Australia.
3. In conclusion
At the end of the day, we drink either COCA-COLA or PEPSI.
But listen, both of these market structures ( monopoly and oligopoly ) would be great for any business but we should know that a business is for the people we want to help.
Let’s not that one of the key risks with a monopoly or oligopoly structure occurring is that it can then become nearly impossible for a new competitor to enter the market.
3.1. Monopoly and oligopoly is negative for consumers
Generally, monopoly and oligopoly, each result in a negative position for consumers.
Some marketers will say, ” well Chris, it is good to keep scarcity in the market ” but this is not even that, having a single company provide only one product, customers will be deprived of their possibility of choice or even to the ability to try something else.
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