Is Fast Food Monopolistic Competition or an Oligopoly?

     Monopolistic competition acts as a sort of middle-ground between perfect competition and pure monopoly markets. Many companies exist with highly differentiated products by possessing different brands, versions, qualities, prices (market power), etc. To gain an edge over competitors, a firm in a monopolistic competitive market will utilize a lot of advertising and branding of its products (nonprice competition).
     Oligopoly can be pretty similar to the monopolistic competition but also very different in other respects. The main point of difference is that there are relatively few firms in a true oligopoly and hence entry/exit is incredibly difficult. Depending on the number of firms an oligopoly, it can either be "tight" with 2-3 firms controlling the whole market or "loose" whereas 6-7 firms control around 70-80% of the market. Firms in an oligopoly can have differentiated products and be price makers as is the case in monopolistic competition, however; what determines if products are differentiated or if firms possess market power is often dependent on the other firms within the same market. Firms in an oligopoly will frequently cooperate, be interdependent of one another, or at worst; collude with each other.
     Now to my main point; is the fast food industry more of monopolistic competition or an oligopoly? Most would likely answer monopolistic competition but I would argue that a better example of monopolistic competition would be the markets containing non-chain or small-chain restaurants while big fast food chains would better fit more into an oligopoly. While it is true that fast-food chains have many of the characteristics of monopolistic competition, namely intensive advertising and branding (although non-price competition is also present in oligopolies at times). Differentiated products is an attribute that can apply to both market types as it does in the case of fast food. However where I see that it fits better is that of a loose oligopoly because of its few firms, difficult entry/exit, and that price-making capabilities are limited by cooperation with other firms. McDonald's owns a staggering 17% of the fast-food market, while Yum! Brands (Taco Bell, Pizza Hut, KFC, etc.) owns 10.8%, and Subway following with 6.7% of the market share and actually the most locations out of all fast food chains with around 45k across the world (25k in the USA). In fact, Yum! Brands was formed out of a merger of several companies owned by the same parent company (Pepsi Co.) and proceeded to absorb more brands; a trait characteristic of a firm within an oligopoly. I would imagine if I were to decide I wanted to begin a fast food burger chain right now I would have a very hard time with a McDonalds and Burger King just down the street who have the resources to outcompete any entry into the market in every single aspect. You also would not see McDonald's suddenly deciding to charge $10 for a Big Mac. Although there is some brand loyalty in the fast food market, there is hardly enough to warrant people to keep on buying $10 Big Macs unless Burger King decided to start charging $10 for a Whopper, and Wendy's decided to start charging the same for a Dave Burger. If McDonald's started charging less than a dollar for a Big Mac, the effect on McDonald's itself or other firms would be disastrous if everyone did not follow suit, unlike in monopolistic competition where the effect on the market would be negligible at best. With these points in mind, I think it is fair to say that although fast food is not purely an oligopoly, it is neither purely a monopolistic competition and that it leans more towards that of a loose oligopoly.


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