What is the difference?
First of all, I want to explain those two terms. A monopoly and an oligopoly are market structures that exist when there is imperfect competition. A monopoly is when a single company produces goods with no close substitute, while an oligopoly is when a small number of relatively large companies produce similar, but slightly different goods. In both cases, significant barriers to entry prevent other enterprises from competing.
A pure monopoly controls the total supply of a product to a market. Furthermore, a monopoly may restrict supply to force up the market price and earn abnormal profits.
How do they restrict competition?
As I mentioned below, artificial barriers to entry may be used by a monopoly to restrict competition unfairly. This could happen by using predatory or destruction pricing to force rivals out of business, threatening major suppliers that it will stop buying from them if they supply rival firms or threatening retailers to stop supplying them with their product if they stock rival products. But naturally barriers to entry are not necessarily bad. They occur because large-scale production is often more efficient. Smaller firms may be unable to compete with larger firms on costs and revenues because large firms may enjoy significant economies of scale that give them a natural monopoly, small firms cannot match the capital investment needed for large-scale production, large firms may have built up significant customer loyalty over time and some large firms may have a legal monopoly because they have patents to protect their innovative products and technologies from being copied (this could be the case in the Pharmacy industry).
Apple – an oligopoly?
All that I have explained in theory, I would now like to explain with a practical example in the hard- and software development industy. The company I want to talk about is Apple. In the decade since the iPhone’s debut, Apple has sold an average of 120 million devices per year. More remarkable than the newest features or latest design is the fact that the iPhone has retained its dominate position in terms of mindshare, if not market share, for so long. When you are a dominant player, you have to think longer term and trust the relationship between your brand and consumers. To remain relevant in the long term, organizations must increase their metabolism to keep pace with today’s business velocity. That means moving from siloed, hierarchical structures to more cross-collaborative cultures. The old way of handing off a project from one department to the next doesn’t work in a mobile and social landscape where consumers demand a seamless experience.
Apple has become the subject of many different antitrust investigations, looking into the iPhone maker’s activities relating to the App Store, Apple Pay, and other areas.
What is antitrust?
Generally speaking, antitrust relates to how big companies operate within a market, and if there are issues regarding competition. Antitrust laws are put in place to prevent any abuses of power by a company being big enough to effectively operate as a monopoly, and to encourage more competition between firms. For example, antitrust laws help keep companies that seem to be a monopoly honest by operating fairly. While it would be easy for a big company to cut out others in an industry in a variety of ways, the laws instead seek to maintain the opportunity for smaller rivals to exist, and to potentially grow to a size where it could compete more effectively against larger incumbent companies.
Thank you for reading my blog entry!
Volkswirtschaft gestalten, Schülerbuch 2018