1. Market Structures in a Free Market Economy
Part III

2. Oligopoly Characteristics:
Market dominated by small number of large sellers
One firm can cause change in output, sales and prices of entire industry
Product may be differentiated or standardized

3. Oligopoly, cont. Results:
Still competitive, but further from pure competition than monopolistic competition
Interdependent behavior: when one firm does something, others usually follow.
Price wars – higher prices discouraged
Price leadership – occurs when one firm initiates most of the price changes
Non-price competition preferred
May result in collusion (formal cooperation) such as price fixing

4. Oligopoly, cont. Examples: Auto industry Steel industry
Airline industry
Some industries are becoming oligopolistic:
Soft drinks (Coke, Pepsi)
Fast food (McDonald’s, Burger King, Wendy’s)

5. Monopoly Characteristics: Exact opposite of pure competition
One seller of a product with no close substitutes
Pure monopolies almost never exist.
Most qualify as near monopolies.

6. Monopoly, cont. Types: Natural monopoly Geographic monopoly
Costs minimized by having a single firm produce the product
Firm usually more efficient when larger
Examples: telephone, electricity, water
Geographic monopoly
Exists because of location
Competition may eventually exist
Examples: drugstore in small town, gas station at a lonely highway exit

7. Monopoly, cont. Technological monopoly Government monopoly
Exists when a firm invents a new product
Often protected temporarily by a patent
Example: Microsoft
Government monopoly
Govt.-owned business without competition
Usually involve products not adequately provided by private industry
Examples: US Postal Service, water service in some towns