Types of Oligopoly

Pure oligopoly- there is only few sellers that produce identical products. This type of oligopoly is
common in a market situation where the products sold are fairly homogeneous.

Examples: cement, sugar and other raw materials

Differentiated Oligopoly- refers to a few sellers of differentiated products in common that is value
characteristics, or quality of goods vary.

Example: Classic Example of this type are the telecommunication ( Digitel, Globe, Smart), airline and
shipping industries because of the numerous characteristics of their services.

Duopoly- this type of oligopoly is seen in the television and radio industries in which both operate in the
same locality although technically, they are one company.

Types of Organization of Oligopoly

Cartel- is a formal agreement among oligopolists to set up a monopoly price, allocate output, and share
profit among members. A good example of this type of Oligopoly is the Organization of Petroleum
Exporting Countries (OPEC). This is an intergovernmental organization of 12 developing countries and its
main objective is to coordinate and unify petroleum policies among member countries in order to
secure fair and stable prices for petroleum producers; an efficient, economic, and regular supply of
petroleum to consuming nations; and a fair return on capital to those investing in the industry

Collusion- is a formal or an informal agreement among oligopolists to adopt policies that will restrict or
reduce the level of competition in the market. This usually happens in the bidding process for road
development work in several regions of the country.

Analyzing Oligopoly using Kinked Demand Curve

Kinked demand curve is defined as the demand curve of the individual firm in oligopolistic market. The
kink in the demand curve at the price is caused by the expectations of the firm on the action that is
competitors may take if the firm will change its price.

Monopolistic Competition

This is a market situation in which there are many sellers producing highly differentiated products.
Under this condition, there is competition because many sellers offer products that are close, but not
perfect, substitutes for each other.

Monopolistic Competition has similar characteristics with perfect competition but in addition to product
differentiation. Product differentiation creates some degree of market power to monopolistic
competitors, since each competitors can somewhat raise price without losing all its customers.
Industries producing personal care products, cars, apparel, furniture, medicine, and the like are good
examples of monopolistic competitions.

Essential Characteristics of Monopolistic Competition are:

1. A large number of buyers and sellers in given market act independently

2. There is a limited control of price because of product differentiation
3. Sellers offers differentiated or similar products but not identical products
4. New firms can enter the market easily. However, there is a greater competition in the sense that
new firms have to offer better features of their products.
5. Competition in the market focuses not only in the price but also on product variation and
promotion

Short-run Analysis of Competition

this figure shows that the best level of output for a monopolistically competitive firm is given by point a,
the intersection of marginal revenue and marginal cost (MR=MC) at 50 units of output; notice how the
demand curve in this type of market is more elastic due to product differentiation.

Long- Run Analysis of Monopolistic Competition

If operating under a monopolistic competition market is quite profitable in the short-run (or in the long-
run because of building more optimal plants), competition will intensify in the long- run. This will result
to a decrease in market shares of each firm in the market, or the demand curve will move leftward until
it is tangent to the LAC.

Monopsony

A monopsony is a market situation where there is only one buyer of goods and services in the market. It
is sometimes considered analogous to monopoly in which there is only one seller of goods and services
in the market. Since there is only one buyer, this market has the control of supply and it can reduce the
number of input demanded in order to decrease the price of that particular input.

Monopsony gives the firm the ability to control its unit cost for an input which is similar to the way the
monopoly control its price.

Oligopsony

This is a market situation where there is a small number of buyers. This is usually with a small number of
firms competing to obtain the factors of production.
Under this market situation, firms are buyers and not sellers. This is sometimes analogous to oligopoly,
where there are few sellers.

Summing Up the Market

A summary of Market Structures is shown in table

Market Perfect Monopolistic Oligopoly Monopoly

Characteristics Competition Competition
Product No Yes Only slight when Yes
Differentiation the oligopolist
(brand name) supplies raw
materials
Price Competition Intense; must Intense Occasional but Occasional with
meet price of cooperative producers of
other firms behavior often substitute goods
present and services; price
of natural
monopolies
subject to
regulation
Non- Price No High High Often; to promote
Competition public goodwill
(Advertising)
Barriers to Entry No Low High High
Information Cost No Low High High
Opportunities to No Few Many Many; through
earn and keep often regulated
economic profits
Number of sellers Large number of Numerous buyers Small number of Only one seller
sellers and sellers Firms
Degree of control Price taker Limited control Has control over Price maker
over price price
Type of Product Homogeneous Differentiated Differentiated or Highly
Product products or similar identical products Standardized
but not identical