Monopolies and Oligopolies

Monopoly

• occurs when theres only one seller in the market
• monopolist has market power and will normally sell its goods or services above the marginal cost
• assumptions about markets with a monopolist:
  • monopolist maximizes profits
  • monopolist sets its prices
  • there are barriers to entry and exit
  • there is one firm that dominates the market

Oligopoly/Duopoly

• oligopoly: a market with only a few sellers
  • scale of production for firms is large
• duopoly: there are only two sellers producing goods for the market
• oligopolies have market power
• each firm pricing decision depends on demand curve and production and pricing of other firms in the market
• examples:
  • airplanes: airbus or boeing
  • wireless carriers: Verizon, AT&T, T-Mobile

Monopolistic Competition

• monopolistic competition: a market with many sellers competing against each other selling slightly different products
  • because of many sellers, having market power relies on how different your product is
• more competitors, more substitutes
  • makes the demand more elastic and reduces the firms market power
• examples:
  • monopolistically competitive markets:
  • fast-food restaurants
  • breakfast cereals
  • coffee brands