Differences Between Monopoly And Oligopoly

Barriers of entry as the name indicates are the factors that prohibit firms from entering the industry. Monopoly exists when a single firm dominates the market because it is the only producer of a product and there are no close substitutes whereas oligopoly exists when a few large producers of identical / differentiated products dominate the market. In case of strong barriers pure monopoly exists due to the dominating firm effectively blocking all the potential competitors whereas in case of weak barriers, oligopoly exists as the market is dominated by few firms. In the absence of entry barriers, new firms enter the market leading pure competition. So, barriers to entry exists not only in the extreme cases like pure monopoly, but also in less …show more content…
Economies of scale: Economies of scale is an important entry barrier exists in an industry where economy is a determining factor. Monopoly is predominantly seen in industries where economies of scale exists i.e.., declining average costs with added firm size because only a few large firms or in extreme cases a single firm can sustain as they can achieve low average total costs. Examples of industries where monopoly is predominantly seen include steel, commercial aircrafts, computer operating software, etc. In such industries new businesses that try to enter the market are forced to be out of businesses by the monopolists who predominate the market by reducing the price. Monopolists can make profits even by reducing the price because of their low-average total costs but new businesses cannot afford it. Another major concern for new businesses venturing into the market is finance. Oligopoly is seen in industries which is dominated by few large players and economies of scale are an important entry barrier for new businesses. Examples of industries where oligopoly is predominantly found include Jet engine, automobile, petroleum-refining …show more content…
Ownership /control of Essential resources: Ownership or control over essential resources can empower businesses to create monopoly and force their rival / new firms to go out of business. Examples of industries where monopoly and oligopoly is seen through Ownership /control of Essential resources include mining including gold, silver and copper.
4. Pricing and other strategic barriers to Entry: Apart from all the entry barriers discussed above, monopoly / oligopoly can also be created by reducing the prices, aggressive advertisements or other strategic action which makes it difficult for the new firms to sustain in the market.

I personally don’t think that monopoly is good as it doesn’t create a healthy environment or competition among the businesses, but with that being said, I think monopoly due to patent is socially justifiable to certain extent as it involves years of research, time, efforts and huge investments and giving exclusive rights for the inventor over the product is justifiable and encourages the businesses to investment in new