Q:

What is the difference between oligopoly and monopolistic competition?

A:

Quick Answer

In a monopoly, one firm holds the power to set prices. In an oligopoly, a few firms hold the power to set prices together. When only two firms hold the power to set prices in an industry, it is called a duopoly. A duopoly is a form of oligopoly.

Know More
What is the difference between oligopoly and monopolistic competition?
Credit: gehringj E+ Getty Images

Full Answer

When a firm is so prominent in an industry that it contains the power to determine supply and demand, it is considered to have a monopoly over that industry. The prefix "mono" comes from the Greek "monos," meaning "alone" or "one." The prefix "olig" is from the Greek "oligos," which means "a few." Therefore, an oligarchy is when the same power held by one company in a monopoly is shared by a few companies.

There are several different types of oligopolies. There are those in which the few companies are actually working together to control a market, those in which the companies are working separately but simultaneously and those where one company leads the others but does not have a distinct enough advantage to gain power over them.

In both monopolies and oligopolies, firms control markets in either one of two ways. They either control the supply of a product or service, thereby increasing demand, or they control the pricing, thereby controlling what consumers pay.

Learn more about Economics

Related Questions

  • Q:

    What are some examples of predatory pricing?

    A:

    Wal-Mart reducing its prices to the point that the competition cannot compete, and American Airlines reducing its ticket prices to below cost and increasing the frequency of its flights are two examples of predatory pricing. By reducing their prices to these extremely low levels, large businesses hope to put small competitors out of business and create a monopoly. Large businesses can handle short-term losses if it leads to the elimination of competition in an area.

    Full Answer >
    Filed Under:
  • Q:

    What is pricing policy in economics?

    A:

    Pricing policy refers to the way a company sets the prices of its services and products basing on their value, demand, cost of production and the market competition. Pricing policy is essential for all companies as it provides a guideline for creating profits and areas that bring in losses. Pricing policy goes hand in hand with pricing strategy.

    Full Answer >
    Filed Under:
  • Q:

    What factors affect heating oil prices?

    A:

    Heating oil prices are affected by seasonal demands, changes in the cost of crude oil, competition in markets and operating costs. The price consumers pay differs over time and depends on where they live.

    Full Answer >
    Filed Under:
  • Q:

    How does inflation affect the economy?

    A:

    Inflation is an increase in prices, which affects the economy by reducing the purchase power of consumers, causing companies to earn less revenue. Inflation also increases the rate of unemployment.

    Full Answer >
    Filed Under:

Explore