Difference Between Perfect Competition and Monopolistic Competition (With Table)

A monopolistic market and firm and a completely competitive market represent two market systems with major differences in customer base, pricing control, and entrance obstacles. In a monopolistic market, only one company controls the pricing and supply of products or services, and also that company has complete market dominance.

A totally competitive free market, as opposed to a monopoly competition, is made up of many enterprises with no one company controlling the market. No marketplace is either monopolistic or entirely egalitarian in the actual world. Each competitive economy incorporates features of both market types. And, to understand the real market, one must know what and how the monopolistic and competitive markets actually differ.

Perfect Competition vs Monopolistic Competition

The difference between perfect competition and monopolistic competition is that every business firm in the perfect competition market sells a homogenous and standardized product (or chain substitutes of the product ), whereas in the monopolistic competition market, each business will have a subtly different product from all the others, and it will be the sole firm or industry to sell it, whether it is a service or an individual product.

The baseline, or “crucial as it determines,” against whom true market arrangements can be measured is a perfectly competitive market, and it obviously is an ideal case. Perfect competition is the hypothetical complete antithesis of a monopoly, where only one business offers an item or service, and also that firm or industry may charge whatever price it wants since customers have no other options and would-be rivals find it impossible to enter the market.

A monopolistic market, on the other hand, is a speculative situation in which only one corporation may sell goods and services to the whole population. A fully competitive marketplace, in which an unlimited number of enterprises compete, is the absolute antithesis of a monopolistic market. In a strict monopoly model, a monopoly business can limit production, raise the prices, and reap amazingly flourished profit rates over time since the public cannot deny them.

Comparison Table Between  Perfect Competition and Monopolistic Competition

Parameters of ComparisonPerfect CompetitionMonopolistic Competition
Price PlanningPricing depends on the demand of the clients and the production rates required by the industry or firm.Pricing demands on the sole decision of the dominant firm in the market.
Revenue ComparisonAverage revenue is nearly equal to marginal revenue charges.Average revenue charges are more than the marginal charges.
BarriersEasier entry/exit barriers.Entry/exit barriers are complex.
Product DifferentiationHomogenous and similar products are sold by different firms and there is competitive pricing.The firm sells either substitutes or similar products of the same firm or brand chain.
Slope of Demand Curve (Statistically)Slope of demand is horizontal.Slope of the demand curve is downward.

What is a Perfect Competition?

The concept of “perfect competition” refers to a market situation in which a significant number of sellers and purchasers are selling and purchasing comparable products and services. There are no obstacles to entrance or departure for the items and services purchased or sold in this competitive landscape, and the pricing is nearly comparable. Although it is hard to create a marketplace with all of the features of perfect competition, the situation may be used to try and understand alternative market mechanisms, such as monopoly market contests.

A speculative market system in which the following attributes are satisfied is referred to as direct or perfect competition. To begin with, every company sells the same item (the product is a “commodity” or “homogeneous”). Companies are price sensitive and they cannot influence the pricing according to their will. Prices are unaffected by the share of the markets.

Consumers have comprehensive or “precise” knowledge of the goods being offered and the pricing offered by each business in the history, current, and future. Both capital plus labor are highly versatile and flexible. Many businesses can enter or quit the market devoid of incurring any costs.

Such high walls, on the other hand, do not arise in a competitive industry. All market players have comparable and unrestricted access to the information. This assures that any company may create its items and/or services at the same rate and using the same manufacturing procedures as the others on the marketplace.

What is  Monopolistic Competition?

Monopolistic competition is a term used to describe a situation in which there are many purchasers of a certain product but just a few suppliers of the same commodity. In monopolistic competition, a dominating vendor controls pricing, availability, and quantity of the goods or activities.

In monopolistic competition, the firms in the market decide the cost of a product. Each corporation sets its own rates for its items. In a monopolistically competitive marketplace, however, the dominating corporation has a cascading effect that allows it to set the prices of products and services in that particular market.

A monopoly is a market condition in which one business owns 100% of the industry and has complete pricing power and production. Although a monopoly is unusual, there are times when corporations control a significant percentage of the market, in which case antitrust rules apply. For instance, Altria, the tobacco company, has had monopolistic dominance over the tobacco industry since 1985, but the market has begun to exhibit significant competition in this area as well.

A monopolistic market is one in which all of the criteria of a pure monopoly are present. When one provider delivers a certain commodity or service to a large number of customers, it is called a monopoly. In a monopoly competition, the controlling corporation, or monopolistic firm, has complete market power and hence controls the cost and availability of an item or service.

In the lack of extreme hurdles to entrance, including a prohibition on rivalry or sole ownership of all environmental assets, pure monopoly markets are rare, if not inconceivable.

Main Differences Between Perfect Competition and Monopolistic Competition

  1. Perfect competition is a hypothetical state that will not exist in the real world, but monopolistic competition can and does exist in many market environments.
  2. The product supplied in perfect competition is standardized, however, product differentiation is present in monopolistic competition.
  3. The pricing for the entire industry is determined by the price determined under perfect competition whereas, in monopolistic competition, each business sets its price for its products.
  4. In perfect competition, entry and exit barriers are easier than in monopolistic competition.
  5. In perfect competition, the average revenue is nearly equal to marginal revenue whereas, in monopolistic competition, the average revenue charges are more than the marginal charges.

Conclusion

Market models that characterize the amount of competition in a certain geographic location include perfect versus monopolistic competitions. A market system in which many vendors offer identical goods is referred to as perfect competition. Monopolistic competition is defined by a large number of vendors offering products and services to a small number of purchasers.

The main distinction between the two is that businesses in perfect competition are price-sensitive, whereas companies in monopoly competition are price creators.

References

  1. https://www.investopedia.com/terms/m/monopolymarket.asp#:~:text=A%20monopolistic%20market%20is%20a,and%20services%20to%20the%20public.&text=In%20a%20purely%20monopolistic%20model,profits%20in%20the%20long%20run.
  2. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1447789/
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