Market Structures
There are two main market structures in the market known as monopolistic competition as well as oligopoly. They fall between the extreme of real competition and pure monopoly. The two structures are vital because they provide descriptions of companies and industries that are found worldwide. The market structures differ as each one has different characteristics associated with either monopoly or oligopoly.
Oligopoly Market Structure
The first characteristic associated with oligopoly is there that there are a few, large companies that dominate the market. Another element is the production of identical commodities that are similar as well as significant obstacles to entry. The market structure is associated with interdependence of decisions regarding production within the market. Such a market where a small number of companies control the supply to a whole market (Papandreou 1999).Each company produces a similar product. The market structure does not only rely on the larger producers but recognize their interdependence. This is because the activities of one producer affect the schedules of others; hence, each oligopoly business watches their competitors closely.
Oligopolies compete aggressively to gain a big percentage of shares in the market; thus the competition for current or new customers is intense. The reason for such an act is that the products produced by each producer are similar. The situation makes oligopolies have little control of the market price. For instance, Shells petrol is similar to Mobil petrol; hence these two firms watch each...
Oligopoly firms try to make their products look different in the eyes of the consumers. This element can be attained by using various means. First the provision of quality goods and services and different packaging like wrapping brings the dissimilarity among the companies concerned. At times, the companies can opt to offer prizes or bonus after a purchase. The method can make a customer notice the difference between two companies offering a similar commodity. If there is a more commodity differentiation among firms that are associated with the oligopoly market structure, then there is a higher chance a company becoming independent unlike their rivals when setting a product price and output.
It is challenging for new companies with a limited market share to gain entrance into the oligopoly market, and engage in production that is enough to make the commodities cheap for customers to buy. The small amount from leading firms can produce large quantities to enable all customers in need of the product to make enough purchase. It is challenging for new companies to have large market shares than existing producers. This is mostly in instances that the companies have large advertising financial budgets, design patents; licenses and unlimited access to the raw materials Oligopoly as market structure are mainly susceptible to restraining trade practices.
Monopoly Market Structure
Monopoly market structure is associated with one seller of a commodity in a market. This means that the commodities produced have no substitutes as there are…
