Buying and selling products generate revenues and fulfil the needs of people. Buyers and sellers meet and conclude the transaction, and that is termed the Market.
Three types of market structure are Perfect Competition, Monopoly, and Imperfect competition.
Perfect competition and Monopoly have different types of market structures, and they are very different from each other.
- In perfect competition, many small firms compete against each other, while in a monopoly, there is only one dominant firm.
- Perfect competition results in lower consumer prices, while monopoly allows the dominant firm to charge higher prices.
- The perfect competition encourages innovation and efficiency, while monopoly can lead to complacency and lack of innovation.
Perfect Competition vs Monopoly
Perfect competition is a market situation occurring when multiple companies produce homogenous products and services to a large number of well-informed consumers. Here, every company earns normal profits. In a monopoly, companies compete with each other by selling similar products and services. Here, some firms earn super-profits due to their domination in the market.
A form of market structure where there is a large number of competition, a large number of seller and buyers who deals with similar goods and services are termed as perfect competition.
There are almost no entry barriers, and they are driven by small firms which generally have no such influence on the market prices of the products.
Another form of market structure where there is minimal competition and low entry and exit barriers, along with the changed quality and variants of the products offered by each seller, is termed as Monopoly or monopolistic competition.
There are a large number of buyers for specific products with a limited number of sellers for that product.
|Parameters of Comparison||Perfect Competition||Monopoly|
|Profits Comparison||In perfect competition, the profits are normal in the longer run.||The profits are super-normal in this case because of the difference between the price and marginal cost.|
|Entry & Exit Barriers||Very low as there are no difficulties.||Both entry and exit are difficult because of profits and dominant enterprises.|
|Demand curve slope||A horizontal curve showing elastic demand and a small change in price and services can make an infinite change in the number of services and products.||The downward curve, which shows a change in price, can result in significant changes in quantity.|
|Products||In this scenario, Product standardization exists.||In this case, there is no Product standardization but product differentiation.|
|Average & Marginal Revenue Relations||The relationship between average revenue and marginal revenue is equal.AR=MR||The average revenue, in this case, is higher than the marginal revenue.AR>MR|
What is Perfect Competition?
A perfectly competitive market structure has many buyers and sellers. The consumer can choose the goods and services of their choice. The prices are dependent on supply and demand.
The firms in perfect competition are price takers as no one has total control of the market.
The barriers to this competition are very low, and small firms enter and exit easily. Small firms have relatively small market shares.
In this, the firm will always end up earning normal profits in the short run, and there are no abnormal profits. The products are also homogeneous and identical, and there is no product differentiation.
The intense competition in this market makes the price influence every firm, and if there is an increase or decrease in the prices of the products, then the other sellers should also match the same prices.
What is Monopoly?
In a Monopoly market, there are not enough sellers, and there is a large number of buyers. In this, the firms are price makers, and thus, the prices are generally very high as the firms have total control over the market.
They have high and difficult entry and exit barriers.
The firms that enter these markets are generally dominated by the bigger firms. In this competition, the products are not standardized, and they can have substitutes.
The products are very specific, and buyers are not left with many choices to buy. There can be abnormal profits in the short run. Although they are price makers, the government keeps checking on them to avoid product discrimination.
Main Differences Between Perfect Competition and Monopoly
- There are a large number of competitors present in a perfect competition market, whereas there is less or no such competition present in a Monopoly.
- There is a large number of sellers and buyers for dealing with similar goods and services present in perfect competition, whereas, in a monopoly, there are a large number of buyers present for the product but fewer sellers.
- In perfect competition, the products are standardized, homogeneous, and identical, whereas in a monopoly, the products are not standardized, and there can also be substitutes for the products.
- The entry and exit barriers are very low in perfect competition, whereas, in monopoly, the entry and exit barriers are low and difficult.
- In perfect competition, the prices dictated are based on the demand and supply, whereas, in a monopoly, the firms have control over the markets.
- In perfect competition, the prices are generally normal and not high because there are many suppliers, whereas, in the case of a monopoly, the prices are generally high as the firm has control over the market.
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Emma Smith holds an MA degree in English from Irvine Valley College. She has been a Journalist since 2002, writing articles on the English language, Sports, and Law. Read more about me on her bio page.