The monopoly and the oligopoly they are economic market structures (context where the exchange of goods and services between individuals takes place) that occur when there is imperfect competition within the market. In cases of imperfect competition, there is no natural balance between supply and demand to determine the prices of goods or services.
- Monopoly. Economic market model in which there is a single producer, distributor or seller of a good or service. In the monopoly, consumers cannot choose a substitute good or service, since there is no competition.
For example: The De Beers firm (diamond mining and trading) controlled total world diamond production and prices for decades. - Oligopoly. An economic market model in which there are few producers, distributors or sellers of a given resource, good or service. The member companies of an oligopoly often collaborate and influence each other to prevent more competition from entering the market.
For example: Pepsi and Coca – Cola own, in some countries, almost the entire soft drink market.
In both models, there are entry barriers that are very difficult to overcome for companies or groups trying to enter the market. This can be due to the difficulty in obtaining a resource, the cost of technology, government regulations.
Monopoly characteristics
- The term comes from the Greek let us know: “one and poléin: “sale”.
- Competition is imperfect, customers or consumers are forced to choose only one option.
- The company controls production and sets the price by its market power since, being the only company offering, the price is not set by supply and demand.
- The causes are usually: purchase or merger of companies; production costs, which mean that only a producer can develop a product or obtain a natural resource; transnational companies that expand their borders to other countries; licenses issued by the government to a single firm.
- Many countries have antitrust laws to prevent them from controlling the market and restricting consumers’ freedom of choice.
- They may or may not use marketing resources since they control the entire offer.
- There is a natural monopoly when, due to a lower cost, it is convenient for a single company to generate all the production. They usually provide a certain service and are regulated by the government. For example: electricity service, gas service, rail service.
Oligopoly characteristics
- The term comes from the Greek oligo: “Few” and poléin: “sale”.
- There is greater competition than in the monopoly, although it is not considered real competition, since the market supply is regulated by this type of companies that, as a whole, control at least 70% of the total market.
- Agreements are usually established between companies dedicated to the same field, this allows them to control the market supply and have enough power to control prices and production.
- Use marketing and advertising resources.
- It can become a monopoly in a certain region or area where it has no other competitors offering the same product or service.
- There are two types: differentiated oligopoly, with the same but diversified product, with differences in quality or design; and concentrated oligopoly, the same product with identical characteristics.
- There is a natural oligopoly when large-scale production makes business unviable for small companies.
Consequences of monopoly and oligopoly
Monopoly and oligopoly often lead to an impoverishment of the market and a weakening of that sector of the economy. The lack of genuine competition can generate a lack of innovation or improvement of the services provided by companies.
In these models the producer has all the control and very little risk. The consumer loses because the lack of competition or unfair competition causes a rise in prices and a decrease in production.
Examples of monopolies
- Microsoft. Multinational technology company.
- Telmex. Mexican telephone company.
- Saudi Arambo. Saudi Arabian state oil company.
- NiSource Inc. Natural gas and electricity company in the United States.
- Facebook. Social media service.
- Aysa. Argentine public running water company.
- Telephone. Multinational telecommunications company.
- Telecom. Argentine telecommunications company.
- Google. Most used search engine on the web.
- Manzana. Electronic equipment and software company.
- Pemex. Mexican state oil producer.
- Peñoles. Exploitation of Mexican mines.
- Televisa. Mexican media.
Examples of oligopolies
- Pepsico. Multinational food and beverage company.
- Nestle. Multinational food and beverage company.
- Kellogg’s. Multinational agri-food company.
- Danone. French agri-food company.
- Nike. Sporting goods design and manufacturing company.
- Bimbo group. Multinational bakery.
- Visa. Financial services multinational.
- Mc Donald´s. American chain of fast food outlets.
- The real. French cosmetics and perfumery company.
- Mars. Multinational food producer.
- Mondeléz. Multinational food and beverage.
- Intel. Manufacturer of integrated circuits.
- Walmart. Shops and supermarkets.
- Unilever. Multinational producer of food, hygiene and personal hygiene items.
- Procter & Gamble (P&G). Multinational producer of food, hygiene and personal hygiene items.
- Lala Group. Mexican food company.
- AB inbev. Multinational manufacturer of beers and beverages.