Monopolistic Competition vs Oligopoly
Monopolistic Competition and Oligopoly are two Market Structures concepts in AP Economics that students often mix up. In short: monopolistic competition is monopolistic competition is a market structure with many firms selling differentiated products and facing low barriers to entry. Meanwhile, oligopoly is an oligopoly is a market structure dominated by a small number of large interdependent firms. Here is how they compare side by side.
Monopolistic competition is a market structure with many firms selling differentiated products and facing low barriers to entry.
Firms in monopolistic competition have some pricing power due to product differentiation but face competition from many rivals. In the long run, they earn zero economic profit as new firms enter when profits are positive.
An oligopoly is a market structure dominated by a small number of large interdependent firms.
Firms in an oligopoly are mutually aware of each other’s actions and often engage in strategic behavior, such as price leadership or collusion. High barriers to entry limit competition and can lead to sustained economic profits.