Question

How does a monopoly market structure differ from perfect competition and an oligopoly?

Answer 1

Monopoly is the "opposite" of perfect competition in many ways; oligopoly is "in between" and has more obvious application to real markets.

Explanation:

Monopoly and perfect competition are "extreme" market structures that are not easily found in reality; oligopoly and monopolistic competition are more complicated structures that are easily found in many markets.

Perfect competition is a mostly theoretical structure with lots of assumptions. The model is still useful in describing competitive influences and in understanding benefits of markets. Perfect competition requires:

• Many sellers
• All firms with the same information and technology
• No dominant firm -- in theory, all firms are the same size
• No barriers for other firms to enter
• Many buyers
• All buyers have the same information
• No buyer is large enough to exert
  market power
• No transaction costs or information costs
• No asymmetric
  information (no information advantage for buyer or seller)

I might have missed a few assumptions.

Monopoly has a single firm. By definition, that firm is dominant and has barriers to entry that prevent others from selling in the market. The monopoly typically has information not available to buyers or other firms.

Oligopoly describes a market structure with "few" firms -- at least two, but no exact limit on how many. The limit in practice depends on the ability of the firms to coordinate their behaviors, mostly through implicit strategies. (Explicit collusion is banned by U.S. laws as well as by many other nations, but firms have ways to signal their intentions to each other and collude in other less obvious ways.) Oligopoly also requires that firms sell very similar goods or services. (in the purest definition, oligopoly firms sell identical goods, like commodities.)

A fourth structure, also very common, has varying numbers of firms but has differentiated (not similar) goods or services. These structures typically have more than a few firms, but differentiation can be a very subjective concept to define.