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What are the main differences between Monoploy and Monopolistic Competition market structure? - Essay Example

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What are the main differences between Monoploy and Monopolistic Competition market structure?

A monopoly is a market situation where only one seller exists, producing a product which has no close substitutes. It is at the complete opposite end of the spectrum to perfect competition. In practice a monopoly situation can arise when a firm has a dominant position in the market in terms of its market share. For example, British Telecom enjoyed a monopoly until 1988 when the UK office of telecommunication decided to end it. The basis for a monopoly market is the existence of barriers to entry. These are factors that prevent new firms from entering the industry, or even if they do, will force them to close. Barriers can be of various forms.The high fixed cost or setup cost can be the toughest obstacle to tackle. The barrier here is access to capital. Only large firm will be able to fund the necessary investment. An established monopoly is likely to have developed specialized production and marketing skills. It is more likely to be aware of the most efficient techniques and the cheapest suppliers. In most cases, such firms have a major cost advantage because of economies of scale which allows them to operate on a lower cost curve. Advertising and brand names with a high degree of consumer loyalty may also prove a difficult barrier to overcome.The firm’s monopoly position may also be protected by patents and other legal protection such as various forms of licensing or tariffs, which may hinder entrance of local and foreign firms. Aggressive tactics and intimidation may also act as a barrier ...Show more

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A monopoly is a market situation where only one seller exists, producing a product which has no close substitutes.It is at the complete opposite end of the spectrum to perfect competition.In practice a monopoly situation can arise when a firm has a dominant position in the market in terms of its market share…
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