MONOPOLY 2 conditions

- Extreme market structure - No close substitute

- Only one seller provides a good or service o With a close substitute, the monopoly firm faces
that has no close substitutes competition from the producers of the substitute
- Barriers to entry
o Constraint that protects a firm from potential
competitors
o Eg govt licence, copyright, and patent.
TWO MORE MARKET STRUCTURES (THAT LIES BETWEEN
PERFECT C OMPETITION AND MONOPOLY)

Many competing firms – Products are differentiated 

MONOPOLISTIC C OMPETITION (no barriers to entry, any
number of firms can enter at any time. They do have some
degree of market power because they produce different
products.
Few firms competing  OLIGARCHY .
IS MONOPOLY LEGAL ? TWO MORE MARKET STRUCTURES (THAT LIES BETWEEN
Being a dominant business is fine, but in every PERFECT C OMPETITION AND MONOPOLY)
country has laws or institutions to promote
competition and regulate anti-competitive Many competing firms – Products are differentiated 
activities. MONOPOLISTIC C OMPETITION (no barriers to entry, any
Singapore – CCCS oversees anti-competitive number of firms can enter at any time. They do have some
activities. degree of market power because they produce different
- Merger – Uber and Grab – uber fined for this. products.
- Anti-competitive agreements Few firms competing  OLIGARCHY .
o CCCS case 2018, penalised 13 fresh
chicken distributors for 1) coordinated CHARACTERISTICS OF MARKET STRUCTURES
amount and timing of price increases,
2) agreeing not to compete for each The number of firms is the key to determine the
other’s customers in the market. market structure.
- Abuse of dominance.
o Protecting or enhancing the dominant
position is illegal
o Deter competitors from entering the
market
o Drive competitors out of the market
o SISTIC Monopoly Case – largest
ticketing agency in Singapore
 Fined 769K
 Exclusive dealing: Agreement
with Esplanade
 All events must use SISTIC as
the only ticketing provider
deters competitors
Oligopoly
An oligopoly is a market structure characterized by a small number of firms that dominate the industry. These
firms hold significant market power, allowing them to influence prices and output levels. In an oligopoly, firms
are interdependent, meaning the actions of one firm can directly impact the others. This often leads to strategic
behaviour, such as price-fixing, collusion, or non-price competition (like advertising and product differentiation).
Examples of oligopolistic industries include the automotive, airline, and telecommunications sectors. The
presence of few competitors makes the market less competitive than perfect competition but more so than a
monopoly.
Can be divided into TWO CATEGORIES
HOMOGENEOUS PRODUCTS DIFFERENTIATED PRODUCTS
o Steel o Cereal
o Gasoline o Automobiles
o Computer hard drives o Laundry detergent
o Cigarettes
Oligopolies’ Problem
2 characteristics
- Significant barriers to entry (very similar to monopoly)
- High degree of interdependence between the few firms (quite unique)
o Only few firms are operating
o Each firm’s profits and maybe the profit maximising choices really depends on other firms’ actions/
There exists a high degree of interdependence between the few firms.
One of the easiest cases of oligopoly is an industry with two competing firms – duopoly.
 DUOPOLY WITH HOMOGENEOUS PRODUCTS OLIGOPOLY WITH DIFFERENTIATED PRODUCTS
Industry with two firms that compete against one A more realistic industry is a set of firms that make
another by setting prices similar but not homogenous/different products
- Betrand competition Boeing VS Airbus, Coke VS Pepsi, Apple VS Samsung
Assumption: The firms are producing HOMOGENEOUS Three important points
PRODUCTS - These differentiated products are substitutes.
o Consumers have incentive to substitute
Example: Bottled Water among those products.
• A and B - As a result, no company will be able to capture the
• Total demand=1000 bottles of water entire market
• If your price is less than B’s price, demand = - When consumers view the products as less
1000 substitutable, economic profits will be higher.
• If you price is equal to B’s price, demand = 0 - o Consumers view the products as being
1000 somewhat unique. This differentiation helps
• If your price is more than B’s price, demand = 0 the seller a lot, because the market
• What does the demand curve look like? structure is actually closer to a monopoly.
So, economic profits will be higher as well.
Equilibrium Apple Versus Samsung
Both have a MC of $1 • Innovation and Differentiation
A is charging $5 • Quality
B is charging $4 • Global Expansion and Localized Approach:
Is this an equilibrium? • Affordable Pricing
What should A do in • Marketing and Promotion
response? • Customer Service and Support
Then, what should B do in • Partnerships and Collaborations
response?
Residual demand Where does it end?
It depends on the prices
charged by A and B • P=MC=$1
• Profit=0
• How could A and B
avoid a price war?
COLLUSION PROBLEMS OF COLLUSION KEY IDEAS FOR LECTURE 5
• Firms conspiring to set • Illegal • Firms will shut down when price is lower than
the market price • Strong incentive to minimum AVC
• P=$5, each company cheat • Long-run equilibrium price equals min(ATC) and
will get half of the • (4.9- equilibrium profit is zero
demand 1)1000=3900 • Monopoly represents an extreme market structure
• Profit=(5-1)500=2000 • Detection and with a single seller
punishment of • Two market structures that lie between perfect
cheaters competition and monopoly are oligopoly and
monopolistic competition
• The residual demand curve depends on the prices
of all firms in the industry