Oligopoly

When a company is monopolized free enterprise is destroyed, that industry's product prices are reduced, business generally prospers and consumers generally don't. A monopolistic company is any company that has no competition at all, and has the sole right to sell a product. It has two distinct definitions: No close substitutes: A monopoly is not merely the state of having control over a product; it also means that there is no real alternative to the monopolized product. A price maker: Because a single firm controls the total supply in a pure monopoly, it is able to exert a significant degree of control over the price by changing the quantity supplied. Examples of (historical and current) alleged and legal monopolies The salt commission, a legal monopoly in China formed in 1758. British East India Company; created as a legal trading monopoly in 1600. Dutch East India Company; created as a legal trading monopoly in 1602. U.S. Steel; anti-trust prosecution failed in 1911. Standard Oil; broken up in 1911. National Football League; survived anti-trust lawsuit in the 1960s, convicted of being an illegal monopoly in the 1980s. Major League Baseball; survived U.S. anti-trust litigation in 1922, though its special status is still in dispute as of 2008. United Aircraft and Transport Corporation; aircraft manufacturer holding company forced to divest itself of airlines in 1934. American Telephone & Telegraph; telecommunications giant broken up in 1982. Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by the European Commission in 2004, which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The fine was 1.35 Billion USD in 2008 for incompliance with the 2004 rule. De Beers; settled charges of price fixing in the diamond trade in the 2000s. Apple Inc., Accused of forming a Vertical Monopoly, with iPod, iTunes, iTunes Store, and the Fair Play DRM System. Joint Commission; has a monopoly over whether or not US hospitals are able to participate in the Medicare and Medicaid programs. Telecom New Zealand; local loop unbundling enforced by central government. Monsanto has been sued by competitors for anti-trust and monopolistic practices. They hold between 70% and 100% of the commercial seed market. Also, Microsoft is considered by many of being a monopolist on the desktop market, as they hold near-100% of that market, and can more or less dictate what happens in that market. As a diversion, you might also be interested in the term 'monopolistic competition', which is partly related: Any company that advertises is either a monopoly or engaged in monopolistic competition. Companies that are selling identical product to many other firms would be paying to advertise their competitors products as well as their own. The only exception is that a trade association such as milk producers will run ads promoting milk consumption in general. | | Contents * 1 Characteristics * 2 Sources of power * 3 Prices * 3.1 Monopolistic Production * 4 Examples * 5 Related Articles * 6 References Comparison chart | Monopoly | Oligopoly | Meaning: | An economic market condition where one seller dominates the entire market. | An economic market condition where numerous sellers have their presence in one single market. | Characteristics: | A single firm controls a large market share in the industry, thereby gaining the ability to set price. | A small number of firms dominate the industry. These firms compete with each other based on product differentiation, price, customer service etc. | Prices: | High prices may be charged since there is no competition | Moderate/fair pricing due to competition in market. But much higher than perfect competition (where there is a large number of buyers and sellers) | Sources of Power: | Market making ability by virtue of being virtually the only viable seller in the industry. | Market making ability because of very few firms in the industry. Each firm can therefore significantly influence the market by setting price or production quantity. | Barriers to entry: | A monopoly usually exists when barriers to entry are very high - either due to technology, patents, distribution overheads, government regulation or capital-intensive nature of the industry. | Barriers to entry are very high as it is difficult to enter the industry because of economies of scale. | Examples: | Microsoft (Operating systems, productivity suites), Google (web search, search advertising), DeBeers (diamonds), Monsanto (seeds), Long Island Rail Road etc. | Health insurers, wireless carriers, beer (Anheuser-Busch and Miller Coors), media (TV broadcasting, book publishing, movies) etc. | An oligopoly of various brands | Characteristics Monopolistic markets are controlled by one seller only. The seller here has the power to influence market prices and decisions. Consumers have limited choices and have to choose from what is supplied. The monopolist asserts all the power while the consumer is left with no choice. This market condition usually arises from mergers, take-overs and acquisitions. Oligopoly, on the other hand, is a market condition where numerous sellers co-exist in the market place. This market situation is very consumer-friendly because it induces competition amongst sellers. Competition in turn ensures moderate prices and numerous choices for consumers. A decision taken by one seller in an oligopolistic market has a direct effect on the functioning of other sellers. Sources of power A monopolistic market derives its power through three sources: economic, legal and deliberate. A monopolistic entity will use the position it is in to its advantage and drive out competitors either by reducing prices to such an extent that survival for another seller may become impossible or by virtue of economic conditions like large capital requirement for startup companies. Legal barriers like intellectual property rights also help a monopolistic entity retain its power. Deliberate attempts for monopolistic markets would include collusion, lobbying governmental authorities etc. Though an oligopolistic market does not have any sources of power, it comes into existence solely due to the accommodating nature of other sellers. Prices A monopolistic market may quote high prices. Since there is no other competitor to fear from, the sellers will use their status of dominance and maximize their profits. Oligopoly markets on the other hand, ensure competitive hence fair prices for the consumer. Example Long Island Rail Road and Long Island Power Authority are examples of monopolistic markets. Oligopoly exists in Australia in the telecom sector (Telstra rents phone lines to other providers and they subsequently rent to customers), the grocery business (Coles and Woolworths) and media outlets Examples (News Corporation, Time Warner and Fairfax Media . Related Articles * Cartel vs Oligopoly * Acquisition vs Merger * C Corporation vs S Corporation * Marketing vs Sales * Inc. vs LLC References * http://en.wikipedia.org/wiki/Monopoly#Monopoly_versus_competitive_markets * http://en.wikipedia.org/wiki/Oligopoly