The study of micro economics is full of different economic market models. Oligopoly vs. monopoly, is a comparative study, that states some of the interesting facts about these two market models. To know more, read on.
Many of us often think aloud, about different economic concepts that are seen in the markets today. To be very frank, many of us are confused by some concepts. For example, when we see the news flash ‘laptops to become costly’, we understand that prices of laptops are bound to increase but we never tend to ask the questions why? And how? The answer lies in the understanding the market of laptops. The following is a brief transcription of a lecture, where I explained to students the concepts and the comparative study. Please feel free to read through and grasp the working of these models.
Me: Microeconomics is based on the study of different kinds of theories and economic models. We have been studying this discipline of economics for quite a long time and it can be commented that, micro economics is a study of individual economic units such as the market of burgers in the city of New York, market for Boston Red Sox tickets, etc. The three basic things that were studied by classical and neo-classical economists in this field are, the demand for products within the market (demand for burgers), supply of such items (supply of burgers) and finally the factors that affect the demand and supply. Believe it or not, quantity that is demanded and is supplied becomes the basis on which the prices of such products are decided. In their demand and supply analysis of different markets, economic experts such as Alfred Marshall and Adam Smith came across some commonly observed markets, which became their subject of study, and finally led to the evolution of market models.
Student: So basically, monopoly and oligopoly are two types of markets?
Me: Exactly, today I am not just going to tell you the definitions of these markets. We are going to ‘make’ these definitions and understand their meanings. First off, can anyone tell me the different market components?
Student: Buyer, seller, demand, supply and price.
Me: Correct, brief and perfect. Now I want you to imagine a situation where you find that there are a few sellers, may be just a handful of them and millions of buyers. Well, can you think up of a situation like this? Okay, let’s have an example.
Student: Well, sir, why not the market for laptops? Or as you said Red Sox tickets?
Me: Perfect example. Well, look at the situation. There are few number of companies, that manufacture laptops, for the demand of millions. Now can we list out the characteristics of such a market?
Student: Well, there are few sellers and many buyers, but the products are almost the same.
Another Student: Price is decided by supply and demand forces and suppliers fight for market share.
Me: Correct, let me add something more, there are tall entry barriers, but it is not impossible to enter the market. One just needs a lot of efforts and time. A proud example is of Dell who entered the list of personal computer manufactures, with extreme efforts. The inspiring story, after the class. Okay, moving on to monopoly…
I want you to imagine a situation where there is only one seller in the economy who caters to the needs of many demands. Well? Let’s have the example.
Student: Well, how about Microsoft?
Me: Correct. Bill Gates is a great example of a person, who created a monopolistic market. The BASIC was probably the greatest example of a product sold without business competition. Such cases are very rarely seen in common consumer market. In industrial technology market, there are quite a few examples which can be cited. So can we have the characteristics of this market?
Student: High price that is set by the supplier and restricted entry for other suppliers.
Me: Perfect, ten out of ten. Such a market condition, is rare, but very profitable. Hence, if any of you are planning to become entrepreneurs, become monopolists, and avoid oligopolistic markets.
I have a habit of writing some ‘food for thought’ for all my students. So that day, before I left the class, I wrote the following statement on the blackboard: ‘Monopoly of one kind or another, indeed, seems to be the sole engine of the mercantile system.‘ ~ Adam Smith.