Question

Please explain what oligopolistic market structures and monopolistic market structures are with examples. Please show me a recent article which talks about any firm that has to do with these two market structures. Also, what are the equilibrium point for both of the market structures?

Answer 1

Oligopolist Market Structures: Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. There are few number of sellers in this market structure with the huge competition among them for eg: airlines, automobiles, cement. Products can be homogeneous or hetrogenous. Firms are interdependent i.e. due to limited market the action of one firm influence the other firms also. Barriers entry are high in this structure. The most important barriers are govt. licences, economies of scale etc. Oligopolist can earn super normal profits, normal profits or losses but in long run they generally earn supernormal profits.

There are two types of Oligopoly Market structure:

1. Collusive Oligopoly
2. Non- Collusive Oligopoly

Collusive Oligopoly: To avoid any kind of competition and uncertainity arising from interdependence oligopolist firm can enter into collusion. There are two main types of collusion depending upon their relative strength, their objective and whether collusion is legal or illegal. Two main types of collusion are cartels and price leadership.

• Cartels: It is a formal organisation of the Oligopoly firms in an Industry. Cartels are the perfect form of collusion which may open or secret collusion. It form of trade associations, professional organisation. It's fuinctions are: Price fixation giving more importances to Indusrty profit; and Market sharing between its member.
• Price Leadership: It is an informal position of a firm in an oligopolistic selling to lead other firms in pricing. One firm is leader, other firms follow the leader firm.

Non- Collusive Olipgopoly: It is a form of market in which there exists few firms. Each firm has its price and output policy is independent of the rival firms in the market. The entire firms enables to increase its market through competition in the market.

Monopolistic Market Structure: This is the market where, there are many firms selling different products. There is a competition which is keen though not perfect among many firms, making very similar products.Monopolistic Competition refers to the competition among a large number of sellers producing close but not perfect substitutes for each other.

Features of monopolistic market:

• Large number of sellers
• Large number of buyers
• Freedom of entry & exit
• Heavy Competition
• Product differentiation
• Lack of prefect knowledge
• Elasticity of demand (highly elastic)

Monopolistic competition in short run vs long run

Short Run: The short-run equilibrium of a monopolistic competitive organization is the same as that of an organization under monopoly. In the short run, an organization under monopolistic competition attains its equilibrium where marginal revenue equals marginal cost and sets its price according to its demand curve. This implies that in the short run, profits are maximized when MR=MC.

Long Run: In the long run, the AR curve is more elastic than that of in the short run. This is because of an increase in the number of substitute products in the long- run. The long-run equilibrium of monopolistically competitive organizations is achieved when average revenue is equal to average cost. In such a case, organizations receive normal profits.

Oligopolist Equilibrium:

The oligopolist maximizes profits by equating marginal revenue with marginal cost, which results in an equilibrium output of Q units and an equilibrium price of P. The oligopolist faces a kinked‐demand curve because of competition from other oligopolists in the market.