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Market Power: Monopoly and Oligopoly

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In the field of economics, market power is an ability of a firm to adjust or control the market price or volume of production of a product/s in the market. A firm with a market power absolutely raises its price without losing all customers to challengers.  In the aggressive markets, there is no market power for market participants. A firm which has a market power has a capability to affect either the total quantity or current price in the market independently. If the increase in the prices of the commodity leads to a fall in demand, then the fall in supply of the market power creates an economic loss in comparison with circumstances of perfect competition. Generally, in operational terms, market power is involved in a firm’s monopoly or oligopoly which is also referred as competitive power. Usually, the market power can be measured by Tobin’s Q or simply Q ratio (wikepedia 2007[online]).




When the whole market structure of several firms controls the major share of market sales, then the resulting structure is referred as Oligopoly. The Oligopoly is also called as oligopsony. The main function of oligopoly is to engage in collusion, either by tacit or overt, and also thereby work out market power. An open agreement belonging to oligopoly is called as cartel which takes care of the market price or its resolution. Here, Oligopoly is a market conquered by some large dealers. The amount of market concentration is very high and leading firms will take a large percentage. Firms which are within an oligopoly produce more identified products. In that case, advertising and marketing is the major feature of competition in case of such markets and so, there is also no obstruction to other entries (Case Fair 2006).


Another important feature of an oligopoly is the dependence between two firms. This is nothing but, that each firm should always take into account the possible reactions of other firms in the market when they are making pricing and investment decisions. This may generate improbability in such markets. The behavior of firms in perfect case, in monopoly concept can be treated as a simple optimization (Tutor2u2007 [online]).




• Some of the firms are selling product with similarity.

• The production of each firms branded products.

• To make the barriers to enter into the market in the long run that allows firms to make supernormal profits.

• Inter-dependence between competing firms.




If a particular firm has one fourth of the market percentage, monopoly occurs. Monopoly is a state in which the market is dominated by any one of the seller or manufacturer. Monopoly power is an example of market breakdown that occurs when the member has the ability to control the price or other outcomes in a particular market.




• The firm makes top profits

• The firm usually invests its profits on new products or improves the existing products




  • The firm can hike the prices of the commodity according to its will
  • Since the competition is eliminated, the consumer services are hampered





Capital Structure and Market Place. Volume 36, 2004


Principles of Microeconomics by Karl E. Case, Ray C. Fair


Wikipedia (2007). Market Power. Available:  Last accessed 26 October 2007. The Pricing Power of Businesses. Available:

content/essentials/pricing_power.htm.  Last accessed 25 October 2007.

C/E/160. The Level of concentration in the UK construction industry


E/E/51. Compare and contrast the models of Perfect Competition and Monopoly.


S/E/72. Firms behaviour in Oligopoly

P/E/529. Monopoly vs. perfect competition: theory and case study of Microsoft

E/E/27. Influence of market structure on prices

P/E/520. Effects of oligopoly competition on economic performance

E/E/23. Drivers of cost in the automobile industry

P/E/433. Market power: theory and examples

P/E/429. Game theory and business trust

P/E/413. Perfectly competitive market vs. monopoly

S/E/64. Oligopoly and Entry Conditions

S/E/63. Monopoly, competition and innovation

P/E/320. Moving from monopoly to perfect competition

P/E/309. Oligopolistic markets: price competition and consumer interests

P/E/212. Market entry: the problem of barriers

C/E/58. Oligopolistic Competition in the UK crisp industry: market structure

S/E/25. Oligopoly

L/E/12. Comparison of oligopoly theories. Game theory.

I/E/10. The relative importance of advantages and disadvantages of monopoly will vary from industry to industry. Discuss

C/E/19. What are the monopolistic competition and oligopoly? What are then main differences and similarities between these two market structures and perfectly competitive markets?

C/E/18. Explain the main difference in outcome between markets in which there is perfect competition and markets in which there is monopoly. Why is monopoly considered to be inferior from the perspective of allocative efficiency?

S/E/86. John Nash: A Genius to Admire

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