Monopoly, Monopsony, Oligopoly And Free Market

Today, we’re going to discuss different types of markets in the economy. So without further delay, let’s get started!

By the way, make sure you read our blog on “10 Interesting Facts About Microsoft” to gain some insightful information.

  1. Monopoly Market: The first type of market that we’re going to discuss is the Monopoly market which is a specific type of economic market structure that exists when a specific person or enterprise is the only supplier of a particular good in the entire market. As a result, monopolies are characterized by a lack of competition within the market producing a good or service. The characteristics of this market are:
    1. These markets focus on maximizing profit. As there is no alternative available to the market, there is no competition. The monopolist firm can charge a set price above what would be charged in a competitive market, thereby maximizing its revenue.
    2. There are barriers to entry in the market due to patent rights.
    3. A monopolist firm is its own price maker. The price is set by determining the quantity in order to demand the price desired by the firm (maximizes revenue).
    4. The monopolist firm remains the single seller of that product or service as there’re no substitutes available.
    5. Examples: Nuclear energy
Nuclear Energy – A Natural Monopoly
  1. Monopsony Market: In a monopsony market, a firm has market power in employing factors of production (e.g. Labour). In this market type, there is one buyer and many sellers.
  • Examples: Coal mine owner in town where coal mining is the primary source of employment and the government in the employment of civil servants, nurses, police and army officers.
  • In a monopsony, a minimum wage can increase wages without causing unemployment.
  • Workers are usually paid less than their marginal revenue products. This increases inequality in society.
  • For instance: Flipkart is one of the biggest purchaser of books. If publishers don’t sell books to flipkart at a discounted price, they will miss out on selling to the biggest distributor of books.
Coal Mining – A Monopsony Market
  1. Oligopoly Market: An oligopoly is a market structure in which a few firms dominate. When a market is shared between a few firms, it is said to be highly concentrated. Although only a few firms dominate, many small firms may also operate in the market. E.g. Airlines like Air India, Indigo etc.
    1. The firms in this market are interdependent. This is due to the cut-throat competition in the market.
    2. The prices of the firms remain relatively similar to each other and stable over time as they are interdependent.
    3. Oligopolies and monopolies frequently maintain their position of dominance in a market because it is too costly or difficult for potential rivals to enter the market.
    4. There are huge set-up costs for the firms in an oligopoly market.
    5. There is a brand reputation associated with the firms in this market structure.
Indian Airline Industry – An Oligopoly Market
  1. Free Market: Free market, an unregulated system of economic exchange, in which taxes, quality controls, quotas, tariffs, and other forms of centralized economic interventions by government either do not exist or are minimal.
    1. The forces in the market are characterised by the free flow of demand and supply without any government intervention.
    2. A key feature of free markets is the absence of coerced transactions or conditions on transactions.


Team Explified

We like sharing new ideas and helping creative people do better at whatever their creative calling is. Explore, explain, express, experience and experiment more with Explified!

Leave a Comment

Your email address will not be published. Required fields are marked *