As per the definition i found in the internet,

  • Oligopoly, in which a market is run by a small number of firms that together control the majority of the market share.
  • Monopoly, where there is only one provider of a product or service.

Consider this situation in a country.

There are 4 main bus operators in this country. A,B,C and D and some individual bus owners.

The bus fare is controlled by a national body. Some particular bus owners who has AC installed in the bus, charges a 0.2$ extra per route.

In the above scenario in what classification would you put the transport sector of this country. Is it a monopoly as the price is regulated by a single body? or is it an oligopoly as the market share is dominated by these four main company.

Further more for my upcoming exam if I get a question on Market structure of this country transport system how can I elaborate?

  • $\begingroup$ As long as fare revenues are collected by the individual firms, I'd say the market is an oligopoly, albeit a heavily regulated one. $\endgroup$
    – Herr K.
    Jun 21 '15 at 18:47
  • 1
    $\begingroup$ The ability to compete on margins other than the base fare (making A/C available and potentially competing on the price of benefits like A/C) is notable. $\endgroup$ Jun 21 '15 at 21:15

This market is an oligopoly that is subject to government regulation.

It cannot be a monopoly because there is more than one firm. The presence of the regulating government body is a "red herring", it distracts from the main point- there are multiple firms.

It does not appear to be competitive because:

  • Four is subjectively few firms
  • Implicitly, regulation would be entirely pointless in a competitive market.
  • One firm has managed to differentiate themselves by adding air conditioners. Firms in perfect competition cannot be differentiated from one another.
  • $\begingroup$ Just a doubt: regulation would be entirely pointless in a competitive market, but don't you think that Govt. intervention would have an effect on a competitive market? Like both pros and cons, depending on the policy? $\endgroup$
    – Dawny33
    Mar 16 '16 at 6:52
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    $\begingroup$ Yes. Gov. Intervention could be irrelevant, so it's not a great indicator that a market is competitive. I included it more to point out a contrast between the two. Helpful government regulation can happen in oligopoly or monopoly setting. By contrast government regulation is not helpful for a competitive market. $\endgroup$ Mar 17 '16 at 16:03

There is a sense of differentiation thus this is not competitive market clearly. Government regulations in an industry cannot be regarded as a monopoly as government mostly will decide on a price ceiling or floor and not the quantity of transport supplied. Since there are only 4 firms this is an oligopoly clearly. They can collude to restrict output and raise prices if it is within the limits set by government. Maybe the government has set the price to actually prevent collusion.


Partial answer...
Transportation is an example of perfect substitute. If A increases the price, demand of A will decrease. Price is regulated by national body but no single firm can dominate the market alone. So this is not monopoly.

  • $\begingroup$ Perfect competition doesn't really describe the situation in OP's post either though, as this market structure usually assumes a homogeneous product, and OP's situation describes a market where there is some form of product differentation. $\endgroup$
    – Hessian
    Jun 22 '15 at 12:18

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