Difference Between Monopoly and an Oligopoly

¶ … monopoly and an oligopoly. In addition the merger of SBC and ATT ramifications will be discussed.

Difference Between Monopoly and Oligopoly

The Difference Between a Monopoly and an Oligopoly:

The term monopoly is used to define a market situation where there is only one provider of a type of product or service. This market situation is typified by a lack of competition, within the marketplace. In addition, there is typically a lack of viable substitute goods ("Monopoly," 2005).

In contrast, an oligopoly defines a market situation where the market is dominated by a small number of sellers. Interactivity is a key character of an oligopolistic market, as the handful of major competitors are quite aware of each other's actions. Strategic planning, for these organizations, takes into consideration the likely responses of the other major market shareholders. The four-firm concentration ratio is used to determine if an oligopoly exists. If the top four firms control 40% of the marketplace or more, than an oligopoly is said to exist ("Oligopoly," 2005).

The cost advantages that create monopolies are the economies of scale. As an organization controls more and more of the market share, they are able to reduce prices to levels where other competitors simply cannot be competitive. The government too facilitates monopoly creation in de jure monopoly. Intellectual property protection is a form government-granted monopolies ("Government-granted," 2005). However, government does work to reduce market power as well, in the form of anti-trust laws and liberalization.

SBC and ATT Merger: