Difference Between Monopoly and Oligopoly

Monopoly vs Oligopoly

The terms monopoly and oligopoly are applied to market conditions where a particular industry is controlled by either one or just a few players in such a manner that consumers do not have options or substitute for a product or service and have to face difficulties arising out of such situation. Most people are aware of the world monopoly though even true monopoly is rare to find these days. In most countries, postal department can be termed as monopoly as normally there is no other substitute apart from courier services. Similarly, in some countries, electricity distribution and water supply is in the hands of the government and they control the entire market allowing no competition to others. Oligopoly is similar to monopoly in the sense that instead of just a single player dominating an industry, there are few players who collude to dominate the market. Banking sector was a classic example of oligopoly,  people had no option but to bear the inefficiency of public sector banks until private banks came along. However, we will concentrate to differences between the two concepts.

In most of the instances of monopoly or oligopoly, there are artificial barriers that prevent from entering the market. The firm that controls the market does not want others to compete as it enjoys the fruits of being the lone supplier of service or product. The biggest difference between monopoly and oligopoly is that while in monopoly there is a single seller of product or service, in oligopoly, there are few sellers that produce slightly different products and work to keep competitors at bay. They do not let others to emerge as a player in the market and keep their hegemony.

While there is no substitute for the product or service in case of monopoly, there are a few closely related products in case of oligopoly. There are instances where a firm gets converted from an oligopoly firm to a monopoly one when it starts producing products similar to others but develops a product that is not made by others and attains a monopoly of the market (for example Microsoft). There are also instances when a monopoly firm becomes an oligopoly firm as is the case with AT&T which was the only service provider in telecommunications in the country but became only one of many who entered the market with the advent of cellular services.

There are examples where oligopoly firms work in tandem and close cooperation instead of competition thereby creating a monopoly in the market. It may look like there are several companies providing options but they work or act as one company.

In brief:

Monopoly vs Oligopoly

• Monopoly is a market condition where there is only one player dominating the market, and consumer has no options

• Oligopoly is a situation where there are two or more players dominating the market but substitute products closely resemble each other thus creating a situation which is similar to monopoly.

• However, true oligopoly is ideal as it induces competition and brings down prices while at the same time improving the quality of product.