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Duopoly is the special case of which type of market structure?
1. Oligopoly
2. Imperfect Competition
3. Monopsony
4. Monopoly

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Correct Answer - Option 1 : Oligopoly

The Correct Answer is Oligopoly.

  • In the ordinary sense, the term market refers to a place where buyers and sellers meet for exchange. However, the Market need not be the place of exchange.
  • Types of Market Structure
    • Perfect Competition:
      • Participants are high both buyers and sellers.
      • Products have many substitutes and no marketing or selling cost is incurred.
      • Knowledge of participants for entering into the market is perfect.
      • The seller is a Price taker, not a price maker.
      • A buyer willing to buy all at a certain price but none at price higher. So he is a price maker.
    • Monopoly:
      • Buyers are many but the seller is one.
      • Product has no substitute or no close substitute
      • Other competitors cant enter the market due to laws or patents.
      • Price discrimination is seen between poor and rich. Seller is a Price maker.
      • Relative Price inelastic increase means demand decreases by less than X% for an X% increase in price.
  • A natural monopoly is when there is an extremely high fixed cost of distribution e.g. gas, water, electricity.

  • Monopolistic competition:
    • Many buyers and sellers but each selling its differentiated version of good.
    • Marketing selling cost is high. Goods are of different brands where brand loyalty is seen to a limit but many substitutes are available.
    • Unrestricted and free entry.
    • Seller is Price maker to a level.
    • Price increases by x% but demand decreases by less than x% - relatively inelastic. But more elastic than monopoly.
  • Oligopoly:
    • Buyers many but sellers few with intense competition.
    • Product has close substitutes and intense competition amongst sellers. If one seller introduces change others have to follow. High cost of marketing and selling.
    • Entry of new sellers tough due to economies of scale.
    • The seller is a price maker.
  • Monopsony:
    • The monopoly of the buyer but multiple sellers present.
    • Entry closed for other buyers
    • Seen where the government wants to make a defense-related purchase and multiple sellers are bidding for it.
    • The Buyer is a price maker.

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