William Lipovsky
Monopolistic and oligopolistic competition are two models of market competition that are almost inescapable for modern consumers.
Both of these competition models are imperfect — meaning that they show some, but not all, of the characteristics of perfect competition.
In perfect competition, there aren’t barriers to entry and exit in the marketplace, there are a large, even infinite, number of buyers and sellers, and every buyer and seller is a “price taker,” meaning no one has the power to set prices.
In real life, you’ll never find a true example of perfect competition; it finds its home only in economic theory.
On the other hand, there are many real-life examples of monopolistic and oligopolistic competition.
What Is Monopolistic Competition?
Monopolistic competition is a market model in which competitors provide products or services that are similar but can be differentiated from each other.
In this model, competing companies sell products that are all similar to each other but aren’t perfect substitutes. It’s the small differences between companies that allow them to compete for a similar customer base.
They may differentiate themselves through product differences, branding differences, marketing differences, and/or distribution differences.
Many of these differences are perceived, rather than true, and consumers and businesses lack perfect information about each other.
In monopolistic competition, no one business has complete control over market prices; however, all producers have some control over the price.
Entry and exit barriers in the market are generally low. Therefore, there is freedom for new companies to enter and exit the market with relative ease. Someone or some business that’s not especially sophisticated could still open a business and get into the market.
Examples of monopolistic competition are seemingly endless, as any two companies offering similar products or services and competing for the same customer in the same market are said to be engaged in monopolistic competition.
For example, if you need a haircut, there are likely several salons in your area that could satisfy this need. They’re all pretty similar, so each business’ goal is to entice you (the customer) to use their business instead of their competitor’s business.
They’ll try some way to differentiate themselves from the competition, and if they’re good at making themselves seem much better, they’ll be able to charge slightly higher prices.
Examples
- Dry cleaners
- Bars/nightclubs
- Coffee shops
- Grocery stores
- Pharmacies
- Gas stations
- Hotels
- Hardware/home improvement stores
- Furniture stores
- Landscaping/lawn care services
- Car washes
- Automotive service companies
What Is Oligopolistic Competition?
Another market structure model is oligopolistic competition. What makes this market structure decidedly different from monopolistic competition is that entry and exit barriers are usually very high.
Because of this, few companies exist in this market structure and those that do dominate it. They have the power to set prices and continue to be competitive to some degree.
Oligopolies are created in a number of ways, although non-competitive practices, government mandates, or advanced technology are usually precursors.
While restaurants, retail stores, and hotels are good examples of monopolistic competition, health insurance companies, pharmaceutical companies, and technology companies are prime examples of oligopolistic competition.
In all these industries, the average passerby on the street probably wouldn’t be able to enter the market as a producer. Market barriers and regulations are too intense for an average person or business to break into the market.
Examples
Smartphones
- Apple
- HTC
- LG
- Motorola
- Nokia
- Samsung
Digital Video Services
- Amazon
- CBS All Access
- HBO Now
- Hulu
- Netflix
- Showtime
- Starz
Airlines
- Alaska Airlines
- Allegiant Air
- American Airlines
- Delta Airlines
- Frontier Airlines
- Hawaiian Airlines
- JetBlue
- Southwest Airlines
- Spirit Airlines
- United Airlines
- Virgin America
Health Insurance Companies
- AARP
- Aetna
- Blue Cross Blue Shield
- Cigna
- Coventry
- Highmark
- Humana
- Kaiser Permanente
- State Farm
Cathy Desmet
Lindsey Desmet
Loren Eaton
Correct me if I’m wrong but as far as I remember one of tne of the key aspects to monopolistic competition is a low barrier to entry with a large number of firms. Last I checked, making phones, mobile networks and streaming services requires a lot of capital and specialized labor, and so these markets are definitely oligopolies. Please do revise this articls to reflect this information
Hi Andrew,
You’re right — there’s a clear distinction between oligopolies and monopolies, mainly the barriers to entry. We are going to thoroughly review the article to make this clear to readers. Thank you!
monopolies and perfect competitions in u.a.e market