Our website is the source for the latest security and strategic research from the military’s link to the academic community. The Strategic Studies Institute is the War College’s premier landpower research difference between monopoly and oligopoly pdf. Authored by Lieutenant Colonel Joseph Guido. Closer Than You Think: The Implications of the Third Offset Strategy for the U.
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In economics, a monopoly is a single seller. Although monopolies may be big businesses, size is not a characteristic of a monopoly. Holding a dominant position or a monopoly in a market is often not illegal in itself, however certain categories of behavior can be considered abusive and therefore incur legal sanctions when business is dominant. A monopoly is a structure in which a single supplier produces and sells a given product. If there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a “pure monopoly”.
This is termed monopolistic competition, whereas in oligopoly the companies interact strategically. The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis. Most studies of market structure relax a little their definition of a good, allowing for more flexibility in the identification of substitute goods. Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm.
Other sellers are unable to enter the market of the monopoly. In a monopoly, there is one seller of the good, who produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry. A monopolist can change the price or quantity of the product. He or she sells higher quantities at a lower price in a very elastic market, and sells lower quantities at a higher price in a less elastic market.
There are three major types of barriers to entry: economic, legal and deliberate. Economic barriers include economies of scale, capital requirements, cost advantages and technological superiority. Decreasing unit costs for larger volumes of production. Decreasing costs coupled with large initial costs, often due to large fixed costs, give monopolies an advantage over would-be competitors. Monopolies are often in a position to reduce prices below a new entrant’s operating costs and thereby prevent them from competing. If for example the industry is large enough to support one company of minimum efficient scale then other companies entering the industry will operate at a size that is less than MES, and so cannot produce at an average cost that is competitive with the dominant company. Thus one large company can often produce goods cheaper than several small companies.
A monopoly sells a good for which there is no close substitute. The absence of substitutes makes the demand for that good relatively inelastic, enabling monopolies to extract positive profits. The use of a product by a person can affect the value of that product to other people. There is a direct relationship between the proportion of people using a product and the demand for that product. In other words, the more people who are using a product, the greater the probability that another individual will start to use the product. It also can play a crucial role in the development or acquisition of market power.
The most famous current example is the market dominance of the Microsoft office suite and operating system in personal computers. Legal rights can provide opportunity to monopolise the market in a good. Intellectual property rights, including patents and copyrights, give a monopolist exclusive control of the production and selling of certain goods. Property rights may give a company exclusive control of the materials necessary to produce a good. A company wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. In addition to barriers to entry and competition, barriers to exit may be a source of market power.
Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. High liquidation costs are a primary barrier to exiting. Market exit and shutdown are sometimes separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price falls below minimum average variable costs. The cost functions are the same. The shutdown decisions are the same.
Both are assumed to have perfectly competitive factors markets. In a perfectly competitive market, price equals marginal cost. In a monopolistic market, however, price is set above marginal cost. There is zero product differentiation in a perfectly competitive market. Every product is perfectly homogeneous and a perfect substitute for any other.
With a monopoly, there is great to absolute product differentiation in the sense that there is no available substitute for a monopolized good. The monopolist is the sole supplier of the good in question. A customer either buys from the monopolizing entity on its terms or does without. PC markets are populated by an infinite number of buyers and sellers.