Answer to Question #226291 in Microeconomics for Abdi

Question

What is the difference b/n oligopoly and monopolistically competitive market structure

Answer 1

The way markets are arranged on the basis of a number of businesses in the sector is known as market structure. Oligopoly is a structure in which there are fewer, comparatively bigger companies with significant obstacles to entry for other firms. The market has a high level of concentration since it is dominated by a few companies. In an oligopoly market, there is little rivalry for businesses. As a result, whenever they make a business choice, they must consider the reaction of their closest competitors. Oligopolistic market structures must make important judgments about pricing and competition. They must, for example, decide whether they want to fight with competitors or reach an agreement with them; they must also decide whether to modify the price or keep it constant.

In monopolistic competition, on the other hand, the structure comprises a high number of small companies with entrance and exit freedom. Every business has numerous rivals under this model, but each one provides somewhat different items. Each of the businesses in this cluster makes its own pricing and result decisions based on the market it operates in the product it offers, and the associated production costs. Despite the fact that there is a higher flow of information in the market, it does not represent a perfect market.

The primary distinction between the two market structures is the relative size and market control of these businesses based on the number of rivals in a given market. However, there is no obvious distinction between these arrangements; for example, there is no clear definition of how many businesses are required in a market to be classified as monopolistic competition or oligopoly. A geographical region is another element that separates monopolistic competition from oligopoly. It is an important component in determining market structure. If a business is located in a small city, it may fall into the oligopoly market category, whereas if it is located in a large city, it may fall into the monopolistic competition category. A retail market is an example of this. As previously stated, oligopoly imposes higher entry barriers than the monopolistic competition, although the difference is just in degree. A necessity for government authorization, especially in situations where the entrance is limited to only a few businesses, is a significant factor that can lead to an oligopoly market. On the other hand, if a large number of businesses are permitted to enter a market, it might be indicative of monopolistic competition.