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Table of Contents

  1. Topic pack - Microeconomics - introduction
  2. 1.1 Competitive Markets: Demand and Supply
  3. 1.1 Competitive Markets: Demand and Supply - notes
  4. 1.1 Competitive markets - questions
  5. 1.1 Competitive markets - simulations and activities
  6. 1.2 Elasticities
  7. 1.2 Elasticities - notes
  8. Section 1.2 Elasticities - questions
  9. Section 1.2 Elasticities - simulations and activities
  10. 1.3 Government intervention
  11. 1.3 Government Intervention - notes
  12. 1.3 Government intervention - questions
  13. 1.3 Government intervention - simulations and activities
  14. 1.4 Market failure
  15. 1.4 Market failure - notes
  16. Section 1.4 Market failure - questions
  17. Section 1.4 Market failure - simulations and activities
  18. 1.5 Theory of the firm
  19. 1.5 Theory of the firm - notes (HL only)
    1. Cost theory
    2. Calculating costs
    3. Short-run
    4. Long-run
    5. Internal economies of scale
    6. External economies of scale
    7. Diseconomies of scale
    8. Long run cost curves
    9. The very long run
    10. Revenues
    11. Revenues - notes
    12. Profit
    13. Profit - notes
    14. Combining revenue and cost curves
    15. Profit maximisation - price taker
    16. Profit maximisation - price setter
    17. Alternative aims of firms
    18. Profit, sales and revenue maximisation
    19. Perfect competition
    20. Perfect competition - notes
    21. Short-run to long-run - profits
    22. Short-run to long-run - losses
    23. Shut down price, break-even price
    24. Efficient allocation of resources
    25. Monopoly and oligopoly
    26. Monopoly and oligopoly - introduction
    27. Growth and power
    28. The model of monopoly
    29. Monopoly - profit maximisation
    30. Monopoly equilibrium
    31. Monopoly v. perfect competition
    32. Economic efficiency in perfect competition
    33. Economic efficiency in perfect competition and monopoly
    34. Efficiency and market structure
    35. Monopolistic competition
    36. Monopolistic competition - notes
    37. Monopolistic competition in the short-run
    38. Monopolistic competition in the long run
    39. Oligopoly
    40. Oligopoly - notes
    41. Advertising and branding
    42. Product innovation
    43. Theories of oligopoly - non-collusive
    44. The kinked demand curve theory
    45. Kinked demand curve - change in cost
    46. Cut-price competition (predatory pricing)
    47. Theories of oligopoly - collusive
    48. Forms of collusion
    49. Price discrimination
    50. Equilibrium of the discriminating monopolist
  20. Section 1.5 Theory of the firm - questions
  21. Section 1.5 Theory of the firm - simulations and activities
  22. Print View

Monopoly and oligopoly - introduction

Concentrated markets, ones where there are only a limited number of suppliers, behave differently to competitive markets. You are required to know about monopoly and oligopoly.



One or occasionally a few firms dominate the market. The others have to accept the market as established by the others. A perfect monopoly is when there is a single supplier. However, a firm gets monopoly powers as its market share edges above 25% (UK legal definition). Some industries are natural monopolies, such as water supply and basic power generation.



Oligopoly is when a few suppliers who provide the same product dominate a market. Petrol companies and the soap and detergent industry are good examples. Each firm has to be concerned about what the others in the industry will do.

Governments are concerned about both of these types of competition. Economic theory suggests that as markets become more concentrated (the number of firms in the industry falls) they become controlled by the suppliers at the expense of the consumer. As we shall see, this is not always the case. Governments try to regulate (control) these industries.

As was seen earlier, the very size of the firms makes it difficult for others to enter the industry (the size of the firms acts as a barrier to entry). Sunk costs are high so potential losses are high. There is no great encouragement to enter the market however good a product the firm has.

Why do some markets become concentrated and others do not?

The simple answer is growth and economies of scale. Some firms are more efficient than others, and in some industries there are much greater economies of scale than others. This has led to the formation of a number of highly concentrated industries. Examples are the oil and petrochemical industry, the aircraft manufacturing industry, airlines, soft drinks and banking to name just a few. Follow the links below to see how each industry fits the characteristics of monopoly and oligopoly.

Oil and petrochemicals

Aircraft manufacture


Soft drinks


All the above are examples of oligopoly. Examples of monopoly are few and far between. Many natural monopolies, often state owned, have been broken up (privatised) and artificial competition (usually with regulators to control the market) introduced. Examples are electrical power, gas and the telephone service.


More examples - web links

It is worth being aware of recent examples of monopoly and oligopoly and government policy towards them. You should also investigate monopoly and oligopoly situations in the country of your study. This can easily be done by doing an internet search using a search engine such as google. Most national newspapers across the world are also available on-line and have a key word search facility enabling you to explore with relative ease!

In the UK, the best bet is probably to do a search in the Biz/ed In the News archive. You can do this in the window below:

Try searching on terms like:

  • Monopoly
  • Oligopoly
  • Competition

In many countries the definition of a monopoly may be broader than the view we take as economic theorists where we state that the firm is the industry! In the UK, for example, any firm that has 25+% share of the market would be subject to investigation as a monopoly.

N.B. When you are searching on more than one word, it is best to check the 'match exact phrase' box.