Answer the following
1. Explain the features of Oligopoly.
The term oligopoly is derived from the Greek words ‘Oligo’ which means few and ‘poly’ which means sellers. It is that market where there are a few firms (sellers) in the market producing either a homogeneous product or a differentiated product. For example, mobile service providers, cement companies, etc.
Features of oligopoly: Few firms or sellers: Under an oligopoly market, there are few firms or sellers. These few firms dominate the market and enjoy considerable control over the price of a product.
Interdependence: The seller has to be cautious with respect to any action taken by the competing firms. Since there are few sellers in the market, if any firm makes a change in the price, all other firms in the industry also try to follow the same to remain in the competition.
Advertising: Advertising is a powerful instrument in the hands of oligopolists. A firm under oligopoly can start an aggressive and attractive advertising campaign with the intention of capturing a large part of the market.
Entry barriers: The firm can easily exit from the industry whenever it wants. But has to face certain entry barriers such as Government license, patents etc.
Lack of uniformity: here is a lack of uniformity among the firms in terms of their size. Some firms may be small while others may be of a bigger size.
Uncertainty: There is a considerable element of uncertainty in this type of market due to different behavior patterns. Rivals may join hands and co-operate or may try to fight each other
2. Types of monopoly/Explain the types of Monopoly.
The term “MONOPOLY” is derived from two Greek words “Mono” which means “Single” and “Poly” which means “Sellers”. Thus Monopoly refers to “market structure in which a single seller controls the entire market”. And therefore the seller is a price maker and not the price taker.
The following are some of the types of monopolies:
Pure, perfect or Absolute Monopoly: – A pure or perfect monopoly means that the firm controls the supply of a product for which there is not even a remote (close) substitute. Such a monopoly is very rare.
Natural Monopoly: – The monopoly power is acquired due to natural advantages such as good location, control over scarce resources, involvement of huge investment, etc.
Legal monopoly: – It arises due to legal protection given to the producer in the form of patents, trade marks, copyrights, etc. The law prevents potential competitors from producing identical products.
Technological monopoly: – Big firms enjoy technological monopoly due to their superior technology and economies of scale. Other firms do not have the access to such technology cannot produce the quality goods produced by big firms.
Simple monopoly: – In a simple monopoly the firm has monopoly power over a product or service, but it charges a uniform price to all the buyers.
Discriminating monopoly: – In a discriminating monopoly, the firm charges different prices to different buyers in the same market or in different markets fir the same product.
Private monopoly: – When an individual or a private firm controls the production it is regarded as private monopoly.
State or Social Monopoly: – When the government owns and controls the production of a good or services it is called state or social monopoly.