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What is the difference between oligopoly and monopolistic competition?

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  • Essay length: 489 words
  • Submitted: 11/07/2002
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AS and A Level Structures, Objectives & External Influences

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Q. What is the difference between oligopoly and monopolistic competition?

An oligopoly market structure is one in which there are a few large producers who are present in the industry and account for most of the output in the industry, there are many small firms but these few large firms dominate and have concentrated market shares.

Whereas monopolistic competition is a market structure that has a large number of sellers, each of which is relatively small and posse a very small market share.

Another feature of an oligopoly is that there are some barriers to entry and exit into the industry. In the short run, oligopolies are able to earn abnormal profit, but in the long run as well they are able to sustain abnormal profits due to the barriers to entry and exit.

The barriers act as a strong deterrent to firms that want to come into the industry and " eat into" the abnormal profits and then exit the industry. Thus not many firms dare to venture into the industry; therefore oligopolies can earn abnormal profits in the long run as well unlike firms in monopolistic competition.

In monopolistic competition

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