What is a monopoly, duopoly, oligopoly, and tripoly market?

Monopoly

Anil Ambani said that RComm will exit the telecom business completely and quoted, “There has been a creative destruction of the telecom sector resulting in the creation of oligopoly, which is going towards a duopoly and maybe even a monopoly in the future.”

Just think for a while, “What if Jio established a monopoly on 4G network in India?”.Don’t worry it’s never going to happen, it’s pretty unlikely. Only there would be the price war.

Let’s understand these terms i.e. a monopoly, duopoly, and oligopoly. To explain these terms I would like to start with an ideal example of Coca-cola and Pepsi are in an oligopoly/duopoly market. They usually change the price of their goods according to the kinked demand curve. They are using cut-throat competition to attract a more potential customer. Normally, both of the firms will use a low-price strategy at the same time to maximize the market profits. The two firms will become a cartel to avoid other firms to enter this market because it will decrease their economic profit. A cartel is a small number of firms acting together to limit cost, raise the price and increase profit.

Neither coca cola nor Pepsi exit from this market, another firm will become a monopoly. The soft drink price will become higher.

A monopoly and an oligopoly are economic market structures where there is imperfect competition in the market. A monopoly market contains a single firm that produces goods with no close substitute, with significant barriers to entry of other firms. An oligopoly market has a small number of relatively large firms that produce similar but slightly different products. Again, there are significant barriers to entry for other enterprises.

In a monopoly, the seller can charge high prices for the goods because there is no competition. In an oligopoly, the prices are moderate due to the presence of competition. However, they are higher than they would be in perfect competition.

Any company with a new or innovative product or service enjoys a monopoly until competitors emerge. Some of these monopolies are actually protected by law. Pharmaceutical companies in the U.S. are essentially granted monopolies on new drugs for 20 years. This is necessary due to the time and capital required to develop and bring new drugs to market. Without the benefits of this status, firms would not be able to realize returns on their investments, and potentially beneficial research would be stifled.

MONOPSONY

One buyer, many sellers. Such a business enables the buyer to exercise considerable power over the seller and the price the producer is going to charge. A question often asked is: can a monopsony be a monopoly? The answer is yes…Wal-Mart for one is able to offer low prices because they buy in bulk and demand and are able to pass this on to the consumer.

Monopsonies occur rarely; for example, in a one company town, where there is only one employer and he is able to check demands for higher wages.

DUOPOLY

Two sellers, many buyers. Neither company can behave as if he has a monopoly because he has to take the other’s production and pricing policies into account. BUT, the opportunity is there for an understanding for the duopoly to limit production, divide markets, and charge monopoly prices. Examples include Pepsi and Coke, Blockbusters and Rogers Video, Airbus and Boeing and, Sotheby’s and Christie’s n the auction market.

TRIOPOLY

Three sellers, many buyers. Once again a three-company market with considerable control over pricing and production. Examples include GM, Chrysler and Ford in the 1970’s, Sony, Nintendo and Microsoft in the gaming industry and, General Mills, Post and Kellogg’s in the breakfast cereal sector.

OLIGOPOLY

Few sellers (more than three), many buyers. These tend to be large in nature and constitute a huge part of the economy. They can, by their nature, exercise limited price competition and are often accused of getting together (colluding) to fix prices and output. Here in Canada, the big banks (CIBC, TD Canada Trust, BMO, RBC and Scotia bank) are an example of an oligopoly. Gas stations in Canada (Shell, Esso, Petro Canada, and Sunoco) are also examples. Other examples include OPEC, Supermarkets and fast food restaurants (KFC, Harvey’s, McDonald’s etc)

Source:

  1. https://www.investopedia.com/ask/answers/121514/what-are-major-differences-between-monopoly-and-oligopoly.asp
  2. https://schoolworkhelper.net/business-monopolies-oligopolies-duopoly-tripoly/
  3. http://economicsdicussion.blogspot.com/2012/11/oligopoly-coca-cola-pepsi.html

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