What Is a Market?

A market is a place where two parties can gather to facilitate the exchange of goods and services.
The parties involved are usually buyers and sellers. The market may be physical like a retail
outlet, where people meet face-to-face, or virtual like an online market, where there is no direct
physical contact between buyers and sellers.

Technically speaking, a market is any place where two or more parties can meet to engage in an
economic transaction—even those that don't involve legal tender. A market transaction may
involve goods, services, information, currency, or any combination of these that pass from one
party to another.

Monopoly
What Is a Monopoly?

Definition: A market structure characterized by a single seller, selling a unique product in the
market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods
with no close substitute.

A monopoly refers to when a company and its product offerings dominate a sector or industry.
Monopolies can be considered an extreme result of free-market capitalism in that absent any
restriction or restraints, a single company or group becomes large enough to own all or nearly all
of the market (goods, supplies, commodities, infrastructure, and assets) for a particular type of
product or service. The term monopoly is often used to describe an entity that has total or near-
total control of a market.

Understanding Monopolies
Monopolies typically have an unfair advantage over their competition since they are either the
only provider of a product or control most of the market share or customers for their product
Characteristics of Monopoly Market

 High or no barriers to entry: Competitors are not able to enter the market, and the
monopoly can easily prevent competition from developing their foothold in an industry
by acquiring the competition.

 Single seller: There is only one seller in the market, meaning the company becomes the
same as the industry it serves. 
 Price maker: The company that operates the monopoly decides the price of the product
that it will sell without any competition keeping their prices in check. As a result,
monopolies can raise prices at will.
 Economies of scale: A monopoly often can produce at a lower cost than smaller
companies. Monopolies can buy huge quantities of inventory, for example, usually a
volume discount. As a result, a monopoly can lower its prices so much that smaller
competitors can't survive. Essentially, monopolies can engage in price wars due to their
scale of their manufacturing and distribution networks such as warehousing and shipping,
that can be done at lower costs than any of the competitors in the industry.

Types of Monopoly
Monopoly is a market in which a single seller controls the entire supply of a commodity. The
different types of monopoly are as follows:

 Private monopoly:
The monopoly firm owned and operate by private individuals is called the private
monopoly. Their main motive is to make profit.

 Public monopoly:
The monopoly firm owned and operated by public or state government is called public
monopoly. It is also known as social monopoly. The entire operation is controlled either
by central or state government. Their main motive is to provide welfare to the public.
 Absolute monopoly:
It is a type of monopoly, where a single seller controls the entire supply of market
without facing competition. It is also known as pure monopoly. His product does not
have even any remote substitute also.

 Imperfect monopoly:
It is a type of monopoly in which a single seller controls the entire supply of the market
which does not have a close substitute. But there might be remote substitute for the
product available in the market.

 Simple or single monopoly:

It is a type of monopoly in which a single seller controls the entire market, by selling the
commodity at a single price for all the consumer. There is no price discrimination in the
market.

 Discriminative monopoly:
When a monopoly firm changes different prices for the same goods or services to
different consumers it is known as discriminative monopoly.

 Legal monopoly:
When a firms enjoys rights like trade mark, copy right, patent right, etc. then it is known
as legal monopoly. Such monopoly rights are approved by the government.

 Natural monopoly:
When a firms enjoys monopoly right due to natural factors like location reputation earned
etc, it is called as natural monopoly. Natural talent, skill of the producer also makes him
to enjoy this right.

 Technological monopoly:
When a firm enjoys monopoly power due to technical superiority over other products in
the market, then it is called as technological monopoly. For example products produced
 by L & T, Godrej etc. are technological monopoly.

So by explaining technological monopoly and other monopolies we have finished with

the full explanation of different types of monopoly.

Oligopoly

Definition

“Oligopoly is a situation in which there are so few sellers that each of them is conscious of the
results upon the price of the supply which he individually places upon the market”-The number
of sellers is greater than one, yet not big enough to render negligible the influence of any one
upon the market price.

What is an Oligopoly?
Oligopoly is a market structure with a small number of firms, none of which can keep the others
from having significant influence. The concentration ratio measures the market share of the
largest firms. There is no precise upper limit to the number of firms in an oligopoly, but the
number must be low enough that the actions of one firm significantly influence the others.

Understanding Oligopoly

Oligopolies in history include steel manufacturers, oil companies, rail roads, tire manufacturing,
grocery store chains, and wireless carriers. The economic and legal concern is that an oligopoly
can block new entrants, slow innovation, and increase prices, all of which harm consumers.
Firms in an oligopoly set prices, whether collectively – in a cartel – or under the leadership of
one firm, rather than taking prices from the market. Profit margins are thus higher than they
would be in a more competitive market. 

Characteristics of Oligopoly Market

1. Interdependence

The interdependence in the decision-making of the few firms that make the industry is the most
important characteristic of an oligopolistic market. This is important because, when the competitors
are few, if a firm makes a small change in price, output, etc., it can have a direct impact on its rivals.

In retaliation, the competitors might change their own prices, output, etc. too. Hence, it is important
for firms to consider the impact of the major decisions they take on the market as well as the other
firms in the industry.

2. Importance of advertising and selling costs

Due to interdependence, firms have to employ aggressive and defensive marketing techniques to
gain a bigger share of the market. Hence, firms incur a lot of costs in marketing and promotional
activities.

Therefore, in an oligopolistic market, advertising and selling costs have great importance.

Usually, firms from such a market avoid price cutting and try to compete on the non-price factors. If
they start under-cutting one another, soon a price-war can emerge, driving some firms out of the
market.

3. Group Behavior

The crux of oligopoly is group behavior. If an oligopolistic assumes profit-maximizing behavior,

then he goes against the fundamentals of an oligopolistic market.

However, there is no generally accepted theory of group behavior. Some questions that require
answers are:
  Do the members of a group agree to pull together in the promotion of common interest or
do they fight to promote their individual interests?

 Does the group have a leader?

 If yes, how does he get others to follow him?

However, one thing as certain – each firm closely observes the behavior of other firms in the
industry. If then designs its moves based on the observation.

Types of Oligopoly:
1. Pure or Perfect Oligopoly:

If the firms produce homogeneous products, then it is called pure or perfect oligopoly. Though, it
is rare to find pure oligopoly situation, yet, cement, steel, aluminum and chemicals producing
industries approach pure oligopoly.

2. Imperfect or Differentiated Oligopoly:

If the firms produce differentiated products, then it is called differentiated or imperfect

oligopoly. For example, passenger cars, cigarettes or soft drinks . The goods produced by
different firms have their own distinguishing characteristics, yet all of them are close substitutes
of each other.

3.  Collusive Oligopoly:

If the firms cooperate with each other in determining price or output or both, it is called collusive
oligopoly or cooperative oligopoly.

4.  Non-collusive Oligopoly:

If firms in an oligopoly market compete with each other, it is called a non-collusive or non-
cooperative oligopoly.
Monopoly vs. Oligopoly

Characteristics

Monopolistic markets are controlled by one seller only. The seller here has the power to
influence market prices and decisions. Consumers have limited choices and have to choose
from what is supplied. The monopolist asserts all the power while the consumer is left with
no choice. This market condition usually arises from mergers, take-overs and acquisitions.

Oligopoly, on the other hand, is a market condition where numerous sellers co-exist in the
market place. This market situation is very consumer-friendly because it induces
competition amongst sellers. Competition in turn ensures moderate prices and numerous
choices for consumers. A decision taken by one seller in an oligopolistic market has a
direct effect on the functioning of other sellers.

Sources of power

A monopolistic market derives its power through three sources: economic, legal and

deliberate. A monopolistic entity will use the position it is in to its advantage and drive out
competitors either by reducing prices to such an extent that survival for another seller may
become impossible or by virtue of economic conditions like large capital requirement for
startup companies. Legal barriers like intellectual property rights also help a monopolistic
entity retain its power. Deliberate attempts for monopolistic markets would include
collusion, lobbying governmental authorities etc.

Though an oligopolistic market does not have any sources of power, it comes into existence
solely due to the accommodating nature of other sellers.

Prices

A monopolistic market may quote high prices. Since there is no other competitor to fear
from, the sellers will use their status of dominance and maximize their profits.

Oligopoly markets on the other hand, ensure competitive hence fair prices for the consumer.
 Monopolistic Production

This video explains how monopolies reduce production and increase prices in the market.

Examples

Long Island Rail Road and Long Island Power Authority are examples of monopolistic
markets.

Oligopoly exists in Australia in the telecom sector (Telstra rents phone lines to other

providers and they subsequently rent to customers), the grocery business(Coles and
Woolworths) and media outlets (News Corporation, Time Warner and Fairfax Media).

Monopoly Cases

For monopoly cases, the Court has used vastly different yardsticks.

Early on, the majority in United States v. U.S. Steel Corp. (1920) wrote "[T]he law does not
make mere size an offense, or the existence of unexerted power an offense." Only abusive
practices by a dominant business, the Court found, were evidence of illegal monopolization.

This outlook changed in United States v. Aluminum Co. of America (2d Cir. 1945), where a
federal appeals court shifted the focus of consideration from abuses to market share, holding
that "immunity from competition is a narcotic." Justice Learned Hand's opinion led to the
creation of a standard two-part test. Companies acted illegally when they possessed
monopoly power in a relevant market, and when they excluded competitors to gain or protect
that power. Still in use, the test has yielded somewhat in recent decades as lower courts have
given dominant businesses more room to legally increase their market share.
The legality of mergers, too, has varied from one period to another. Corporations merge for
economic gain, and this is not always harmful to competition.

Yet in the antitrust heyday of the late 1960s, the Court regarded with alarm a merger
between two companies that had only a combined five percent output in their market, ruling
in Brown Shoe Co. v. United States (1967) that such a merger violated the Celler-Kefauver
Act. Little over a decade later, the popularity of deregulation and the Court's own relaxed
views led to an explosion of corporate mergers that has continued through the late 1990s.
Not all mergers are evaluated in the same way, however, since special circumstances pertain
to certain industries. The federal Bank Merger Act and Bank Holding Company Act, for
instance, provide for close scrutiny of mergers between banks.

Much antitrust case law emerges from the Sherman Anti-Trust Act's ban on "[e]very
contract, combination . . . or conspiracy in restraint of trade . . . " Restraint of trade cases
concern business contracts and agreements. Some of the century's most aggressive antitrust
law evolved in this area, led by the Warren Court in the 1960s. By defining certain practices
as illegal in all circumstances, the Court struck widely at cooperative business deals that
limited productive output, restrictions placed by manufacturers upon dealers, and "tying"
arrangements in which purchase of a given product was required in order to purchase another
product.

In the 1970s and 1980s, the Court, altering its stance under the influence of academic
arguments, embraced the so-called doctrine of economic efficiency. Holding that some
restraint of trade actually was beneficial to the economy, its rulings set higher standards for
antitrust litigation and made winning more difficult for those prosecuting antitrust cases.

In Brunswick Corp. v. Pueblo Bowl-O-Mat (1977), the Court retreated from its long-held
stand that the failure of individual companies was bad for competition, accepting instead that
reduced competition would be offset by reduced costs and increased output on the part of
successful firms. By the 1990s, the efficiency doctrine showed signs of waning.
While some anticompetitive practices are judged harshly, others receive more tolerance.
Courts generally condemn price-fixing, for instance. But another questionable practice, the
refusal of one business to deal with another, is evaluated according to a variety of factors.
Antitrust law acknowledges that sellers may select their own customers. Thus some
individual refusals to deal are legal. However, a refusal may be illegal if the seller has
monopoly power, intends to monopolize, or uses the refusal as part of an otherwise illegal
restraint of trade. Group boycotts are unlawful. Also sometimes illegal are agreements
requiring a customer to deal exclusively with a seller, particularly if they harm the chances of
competitors in the market.

Several exceptions exist throughout all levels of antitrust law. Unions have been exempt
from antitrust law since passage of the Clayton Act, which disregarded human labor as a
commodity. Uniquely among professional sports, major league baseball also enjoys an
exemption. The Supreme Court ruled early on that baseball is a sport and not a business in
Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs
(1922). The Newspaper Preservation Act of 1970, passed amid economic pressures which
threatened the existence of multiple newspapers in communities, allows mergers and joint
operation by publishers that otherwise would be illegal under antitrust law.

States have closely modeled their antitrust statutes on federal law. They prosecuted antitrust
cases extensively before World War I, but were largely inactive in antitrust litigation until
the 1970s. A period of resurgence saw the passage of new state laws and the Supreme Court's
recognition that states, under a doctrine called parens patriae, had the right to bring certain
antitrust lawsuits under federal law, too. In response, state attorneys general pursued antitrust
cases on a wide variety of fronts, notably banking. This reinvigoration was also evident in
the most controversial antitrust action of the 1990s, when, in 1998, 20 states joined the
federal government in its long-running case against computer software giant Microsoft.