Difference Between Oligopoly and Monopolistic Competition (With Table)

Both entrepreneurs and economists have diverse definitions of market structure. Marketers describe it as devising economic tactics in the form of a marketing technique, whereas economists explain it as evaluating the whole architecture with the goal of analyzing and predicting customer behavior.

Despite the diversities in perspective and definitions of a marketing structure, the common elements remain the same. Amongst the 4 types of marketing structures, this article precisely compares two distinct structures namely; oligopoly and monopoly in the field of marketing competition.

Oligopoly vs Monopolistic Competition

The difference between oligopoly and monopolistic competition is that oligopoly is an interdependent environment in which a small number of large enterprises provide customers with homogenous or diversified items. Monopolistic competition, on the other hand, is an uneven as well as technically ineffective, and inefficient market in which numerous enterprises compete by providing differentiated but similar items.

An oligopoly is a competitive arrangement in which only a few enterprises can prevent everyone else from exerting considerable influence. The saturation factor is a ratio of the largest companies’ market dominance. It denotes a structure with a smaller number of potentially bigger enterprises and significant obstacles to entry for new firms. The market has a high level of concentration since it is dominated by a few companies.

Monopolistic competition describes a marketing environment wherein a large number of enterprises compete for the same (but not identical) goods and/or services. In a monopolistically competitive market, entrance and exit barriers are minimal, and one firm’s choices have little impact on its rivals. Monopolistic competition is intimately linked to the distinctive marketing business strategy.

Comparison Table Between Oligopoly and Monopolistic Competition

Parameters of ComparisonOligopoly Monopolistic Competition
DefinitionAn oligopoly is a competitive arrangement in which only a few enterprises can prevent everyone else from exerting considerable influence.Monopolistic competition describes a marketing environment wherein a large number of enterprises compete for the same (but not identical) goods and/or services.
Merchants and SellersFew sellers of consistent as well as strongly influential firms.Lots of sellers and merchants with diverse selling factors for the same or similar product.
BarriersEntry and exit barriers are strict and competitive.Entry and exit barriers are non-competitive and lenient.
Geographical ImpactUsually is effective and seen in action in remote and small cities.Seen in large cities and places with a lot of consumer base.
InterdependenceBecause there are just a few businesses in the marketplace with similar items, oligopoly firms are highly dependent on the activities of other enterprises.Little or less interdependence when compared to oligopoly market structure.

What is Oligopoly?

In an oligopoly, the market has been dominated by a group of enterprises (typically two or even more). Nevertheless, no single business can prevent the others from exerting major power in the sector, and they may market significantly different items.

Due to the sheer competition, price levels in this industry are modest and not ripping. Whenever one firm sets a rate, everyone else will follow suit in order to compete. The market has a lot of dedication since it is dominated by a few companies. In an oligopolistic market, there is little rivalry for businesses. As a result, whenever they establish business moves, they must consider the response of their nearest competitor.

For example, if Chevron wants to grow its customer base by lowering product pricing, it must consider the possibility that competitors, like British Petroleum, could follow suit and lower their prices across the board.

Steel corporations, oil companies, railways, tyre businesses, grocery store chains, and cellular providers have all been oligopolies in the past. An oligopoly, according to economic and legal concerns, can stifle new competitors, limit development, and raise prices, which all influence consumers.

Instead of collecting prices from the marketplace, firms inside an oligopoly determine pricing, whether jointly (in a cartel) but under the direction of a single enterprise. As a result, profitability is larger than in a more saturated market.

What is Monopolistic Competition?

A monopoly firm is one sort of inadequately competitive marketplace. Although monopolistically competitive marketplaces include a huge multitude of different enterprises, the items they provide are not all the same.

Because all monopolistically competitive companies offer unique items, they can charge a greater or lower price than their competitors, indicating that the quantity demanded will be plummeting. Due to the obvious high degree of rivalry with their competitors, companies in monopolistic competition frequently employ marketing to advertise their products.

The structure of a monopolistically competitive market comprises a high number of small enterprises with entrance and exit flexibility. Every business has several rivals under this model, but each one sells somewhat different items.

Each of the businesses in this group makes its own pricing and result in choices based on understanding the customer preferences, the commodity it offers, and the associated production costs. Even though there is a higher flow of information in the market, it doesn’t represent a true market. Monopolistic competition results in market failures since the amount rises the marginal cost of an item because they spend more on marketing expenditures to get market exposure.

Main Differences Between Oligopoly and Monopolistic Competition

  1. An oligopoly market is realistic and provides growth and balance in real-life marketing strategies whereas a monopolistic market structure is hypothetical and imbalanced.
  2. In oligopolistic competition, the rivals are interdependent to uphold the market and costing whereas in monopolistic competition the competitors are independent.
  3. Entry/exit barriers are tough and strict in oligopolistic competition whereas in monopolistic markets the entry/exit barrier is lenient.
  4. In an oligopoly market, just a few modest and small sellers of huge enterprises compete, but in a monopolistic market, many firms compete.
  5. In an oligopoly competition, the firms sell homogeneous products whereas in monopolistic competition heterogeneous products are sold with fixed and increased pricing.

Conclusion

Overall, each economic structure does have its distinct characteristics and has a propensity to vary over the period as the geographic location, market growth, patterns, and desires for a specific product change.

Understanding each framework is critical for a firm, and even for a customer, to make informed strategic decisions. Firms gain influence in both marketplaces by either managing the availability of their particular products or services in order to raise demand, or by regulating pricing, and therefore influencing what a customer pays for all those things.

References

  1. https://www.investopedia.com/terms/m/monopolisticmarket.asp
  2. https://msbrijuniversity.ac.in/assets/uploads/newsupdate/Monopolistic.pdf
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