Econ

Kathy May

Prin. of micro-econ

4/25/2014

There are four main types of market structures that business owners need to understand when entering a market, two of these are monopolies and oligopolies. In the United States we are seeing an increasing number of oligopoly (WU). These types of market structures can have differing impacts on the economy depending on how they are operated. By comparing characteristics of monopolies and oligopolies we can see how each may affect the economy.

The major characteristics that need to be compared are the number of suppliers, market entry barriers, product type, price influencing power, and basis of competition. The chart below shows a simple breakdown that I will delve into further.

Market structure | Number of suppliers | Price influencingPower | ProductType | Market entrybarriers | Basis of Competition |

Monopoly | One | Absolute | Unique ProductNo close substitutes | ExtremelyHigh | No Competition |

Oligopoly | Few 2-3 | Limited to competition | Homogeneous/Differentiated | Somewhat High | Price, ProductAttributes, Promotion Etc. |

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Most monopolies consist of one major supplier, due in part to extremely high entry restrictions such as rights to natural resources, patents, and high start-up cost. The government may create a monopoly over an industry they want to control such as the electric company.

Economics of scale can create a natural monopoly. In this type of monopoly fixed cost are huge and can only be recouped by having a large customer base. Marginal cost are pretty consistent , no matter how much is produced so producing more spreads the cost out resulting in more profits. Oligopolies are similar to monopolies with high entry restrictions. These restrictions can be caused by control over resources to make the product or by patents. In the beer industry 90 percent of the beer market is controlled by Anheuser-Bush Inbev and MillerCoors making local craft brewers fight for space to sell...