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Explain Monopolistic Competition and Oligopoly market structures, and identify the key factors that distinguish them. Choose two different industries from your home country representing Monopolistic Competition and Oligopoly, and identify their key characteristics in relation to the factors used to differentiate between the market structures. Using your case study, evaluate the efficiency of Monopolistic Competition and Oligopoly market structures. (16 marks)
A Monopolistic market is one where there are small firms in the same market, and each is trying to distinguish itself from the competition, through creating a consumer-oriented profile. The products in this market have a high cross elasticity, since the products being sold have a close value system associated with them, yet, none of the product is replaceable, since there is no direct specification for each product. In this sense, it is recognized that a monopolistic market is one where there are a very large number of firms each occupying a small market share (Vogelsang, 2013). Meanwhile, an Oligopolistic market is the one where there are only a few firms which dominates the market framework for the industry, and there is no apparent overpowering or influence of one firm over another (Tisdell and Hartley, 2008). In such a market framework, there is a higher concentration of the firms that dominate, even as smaller firms might operate in this market as well.
Through the course of the present review, this concept is further studied in a more comprehensive light, and the key factors which identifies these business models are studied. The concept is deciphered in the respect of the Bangladesh market, where the factors differentiating these two market types are studied, and the relevance as well operation of each type of model is determined.
Monopolistic and Oligopolistic markets
A monopolistic market is one where there are several small firms, yet none is dominating the market, and is hence effectively everyone is surviving on their value model. Meanwhile, the firms are not colluding with each other's, and hence the price decision of each product is based on the market analysis, and company' perspective (Vogelsang, 2013). As per a review conducted by Carraro et al. (2013), in a monopolistically competitive market, each firm has their down-ward sloping demand curve as it is the product attribute which defines the sale of the product, and not the substitution power. In this context aspects such as service, location, ethos-pathos-logos of advertising and reachability, brand value and consumer experience along with the price model defines the choice of purchase for a consumer (Foster et al. 2011). In addition, in such markets the barriers to entry are limited, and there is a lot of product variety for the consumers.
Oligopoly represents the market structure where very few firms dominate the market. This is a supplier dominated market model, where the focus of the firms is towards outweighing others. In this sense, this market type is interwoven and more interdependent than their counterparts (Tisdell and Hartley, 2008), and product value is based on the innovation and aggressive marketing, as opposed to price and other consumer centric market variables.
As opposed to the monopolistic market framework, there are some intrinsic market types in this framework which are categorized to simplify the firm recognizance in the present case. Here it is noted that the firms through their mutual coordination such as in the case of petroleum sector creates a sort of cartel like framework and dominates the market (Manasakis et al. 2013). While, in cartel framework one firm decides the price, in the tacit collusion two or more firm come to a common agreement of price, for smaller firms in the market. The same can be noted in the case of infant formula industry. Through this consideration, other firms limit their market loss (Welker, 2009).
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