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Eco 560

The key differences between monopolistic competition and oligopoly are: 1) Monopolistic competition has a large number of small firms each with a small market share, while oligopoly has a small number of large firms, each dominating a large portion of the market. 2) Firms in monopolistic competition produce differentiated products with close substitutes, while oligopolies may produce standardized or differentiated products. 3) It is relatively easy for new firms to enter monopolistic competition but barriers to entry are higher for oligopolies.

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284 views1 page

Eco 560

The key differences between monopolistic competition and oligopoly are: 1) Monopolistic competition has a large number of small firms each with a small market share, while oligopoly has a small number of large firms, each dominating a large portion of the market. 2) Firms in monopolistic competition produce differentiated products with close substitutes, while oligopolies may produce standardized or differentiated products. 3) It is relatively easy for new firms to enter monopolistic competition but barriers to entry are higher for oligopolies.

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The differences between characteristic of monopolistic competition and oligopoly are,

firstly, monopolistic competition is an industry that is characterized by a relatively large


number of firms, but the number of firms is not as large as perfect competition. The firm have
a small market share which the size of each firm is small and therefore no single firm can
influence the market price of the product. Meanwhile, for oligopoly the number of firms is few
in industry, but the size of each firm is large. The firm dominates the market because their
market share is large. For example, in Malaysia there are a few petroleum companies, which
is Petronas, Petron, Shell and others.

Next, is differentiated products. Firms in monopolistic competition produce


differentiated product products with close substitutes available in the market. There is a
variety of goods and services available in monopolistic competition and consumers have
many choices of products. The products are differentiated in terms of packaging, labelling,
brand names and others. Example, there are various toothbrush choices available in the
market, such as Darlie, Oral B, Colgate and so on. But, for oligopoly it may produce either
standardized products or differentiated products. Example, for produce homogeneous
products are petroleum, cement, and steel industries and for produce differentiated products
are automobile industry, household appliances and sports equipment.

Other than that, in monopolistic competition it is relatively easy for new firms to enter
into the monopolistically competitive industries. The existence of new firms in the industry is
made possible by producing substitutes of the existing products or creating new brands.
While, in oligopoly the barriers to entry are difficult or significant obstacles. However, the
barriers of new firms in the industry are not as restrictive as monopoly. The barriers of the
entry are due to economies of scale, copyright and others.

Lastly, monopolistic competition is less control over the price. Due to the fairly small
size of every firm, they cannot determine the prices of goods and services. Each firm will
follow an independent price-output policy. For example, there is a situation where the
consumers prefer a specific product and willing to pay more to satisfy their needs. However,
oligopoly is mutual interdependence and control over the price. They have some control over
the price because there are few firms in oligopolistic industries. They also must consider
their rival’s decisions in terms of price, output, advertising and others. This happen when
oligopolistic firm’s profit is not entirely based on their sale strategies or price but depends on
their competitor’s decision. Example, when McDonald’s decide their marketing strategies, it
will consider how KFC might react.

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