Monopolistic And Oligopolistic Competitions Comparison Between Monopolistic Essay

Length: 4 pages Sources: 3 Subject: Economics Type: Essay Paper: #48698463 Related Topics: Toothpaste, Oligopoly, Opec, Comparative
Excerpt from Essay :

Monopolistic and Oligopolistic Competitions

Comparison between monopolistic competition and oligopolistic competition

Interest Rates

Monopolistic competition is a market structure where large number of firms sells differentiated products that are highly substitutes to one another but not perfect substitutes. There is a free entry and exist in the monopolistic competition, and the firms demand curves are downward sloping. Examples of a monopolistic competition are the firms producing clothing, toothpaste, restaurants etc. On the other hand, oligopolistic competition is a market structure where there are few firms competing among one another. There is a barrier of entry because of the economic of scale, patent, and the technology involved in setting up the firm and the presence of few firms give the firms advantage to make excess profits. Examples of oligopolistic competitive market structures are automobiles, steel, aluminium, petrochemicals, and electrical equipments. While there are few firms in the oligopolistic market, there are still competitions among firms. Example of the interest rates that the banks charge on loans reveals the competitive nature of the oligopolistic markets.

Interest rates are the prices that the banks charge for lending money to borrowers.

In the oligopolistic competitions, the interests rates that the bank charges large corporations for the short-term loans are called the prime rate. The changes in prime rates cause interest rates in the money markets to rise or fall substantially. The changes in the prime rates will make major banks to follow suit by changing their rates. The reactions of the major banks will make other banks to follow suit within few days. Changes in the interest rates will make the active banks to enter the market and non-active bank to exit the industry. (Totzek, 2011). In the long run, the firms in the oligopolistic market may form collusion to continue enjoy higher profits. For example, the interest rates charged by the commercial banks are very similar. The higher profits enjoyed by the commercial banks may not be affected with the change in the interest rates because major commercial banks charge the same interest rates on the money borrowed by customers.

However, in the monopolistic...


In the contemporary business environment, many firms depend on the bank loans to raise capital. Since there are fierce competitions among firms in the monopolistic competitive markets, firms will likely to raise capital from banks to satisfy the market obligations such as advertising, packaging etc. With increase in the interest rates, many weak firms will be forced to exit the market.


Under the monopolistic competition, change in the consumer income has different impact on product prices. In the short run, when entry into the market may not be possible, the increase in the consumer income make the demand for the products to be less elastic because firms will charge high prices for their products, and thereby making abnormal profits. From the illustration in Fig 1, in the short run, firms make profit when MR= MC and the MR < P. There is an also downward sloping demand of monopolistic competition where the demand is relative elastic because of the good substitutes.

Fig 1: Monopolistic Competition in the Short run and Long run

However, in the long run, more firms will enter the markets because firms in the monopolistic competitive market are making higher profits, thereby leading to tougher competitions among firms. To attract more customers, firm will decrease their prices leading to the decrease in profits. The weaker firms will exit the market because of the decrease in profits.(Tarasov, 2011). From the illustration in the Fig 1, there will be no economic profit because P = AC and more firms are attracted to the industry which makes the price to fall.

Likewise the behaviour of the monopolistic competitive markets, the changes in the consumer income also makes the firms in the oligopolistic markets to charge higher prices in the short run. For example, if there is increase in the consumer income, the oligopolistic firms will increase the price of their products to make higher profits since there is increase in the purchasing power of consumers based on the increase in wages. Unlike monopolistic market competition where weaker firms exist market in long run when there is decrease in…

Sources Used in Documents:

references and Income Efects in Monopolistic Competition Models. University of Munich.

A Monopolistically Competitive

Firm in the Short and Long Run



Cite this Document:

"Monopolistic And Oligopolistic Competitions Comparison Between Monopolistic" (2011, September 02) Retrieved November 27, 2021, from

"Monopolistic And Oligopolistic Competitions Comparison Between Monopolistic" 02 September 2011. Web.27 November. 2021. <>

"Monopolistic And Oligopolistic Competitions Comparison Between Monopolistic", 02 September 2011, Accessed.27 November. 2021,

Related Documents
Microeconomics Across the World Comparing the Economies
Words: 1511 Length: 5 Pages Topic: Economics Paper #: 59127575

Microeconomics Across the World Comparing the Economies of Two Countries with Regard to Pricing Structures With notable exceptions, such as Cuba and North Korea, most of the major global economic powers have within their national microeconomic or internal frameworks, some forms or a semblance of a competitive, capitalist economies. In other words, individual economic actors such as firms compete for the monetary confidence of consumers within particular industries, rather than having such

Pricing Strategies
Words: 3056 Length: 9 Pages Topic: Economics Paper #: 53473376

market structures and the pricing strategies which are specifically related to each of them. The introductory section of the paper gives an overview of the four major types of market structures and explains the main features which draw distinguishing lines between them. These major types of market structures are perfect competition, monopolistic competition, monopoly, and oligopoly. The second section discusses the pricing strategies which are used by competitors in

Market Structure and Pricing Strategies
Words: 3091 Length: 9 Pages Topic: Economics Paper #: 49191873

market structures in detail and analyses the pricing strategies that the firms have to undertake when they operate in different regimes. The case study on Toyota is considered next, which indicates that firms competing in various structures does not only have to focus on price and quantity ceteris paribus, they also have to consider external and internal variables that have a bearing on these decisions. Introduction to Market Structures Market structures

Antitrust Practices and Market Power
Words: 968 Length: 3 Pages Topic: Economics Paper #: 28201889

Antitrust Case Background One recent antitrust action has been between the United States Justice Department and the credit card companies. The government has argued that American Express has hindered competition in the credit card market. At issue are rules that AMEX imposes on retailers to prevent them from offering incentives to customers to use other cards (Longstreth, 2014). This is not the first time that credit card companies have faced antitrust action,

Economics Business' Micro Economics Required Write Assignment
Words: 726 Length: 2 Pages Topic: Economics Paper #: 96886786

Economics Business' (Micro Economics) required write assignment response question: Compare contrast ' forces' analysis competitive structure S-C-P (Structure Conduct Performance) models perfect competition, monopoly oligopoly. Five Forces vs. SCP model The SCP model of market development suggests that there are three basic market structures which exist, that of perfect competition, monopoly and oligopoly. In a model of perfect competition, consumers are extremely powerful. "Perfect competition is characterized by many buyers and

Marketing Strategies in the Frozen Food Industry
Words: 1941 Length: 6 Pages Topic: Marketing Paper #: 88871081

Operations Decision for Short-Run and Long-Run Production and Cost Functions Busy weight-conscious consumers are increasingly searching for easy-to-prepare low-calorie alternatives, and it is not surprising that this industry has experienced sustained growth in recent years (Myers, 2016). In order to gain and sustain a competitive advantage in this industry, however, requires careful attention to demand levels and competitors’ pricing strategies. This paper outlines a plan that can be used to assess