20+ Difference between Perfect Competition and Monopolistic Competition

A monopolistic and completely competitive market couldn’t be more different regarding market share, pricing control, and obstacles to the entrance.

A monopolistic market is one in which a single company has complete control over the pricing and availability of all of the market’s products and services.

In contrast to a monopolistic market, a fully competitive market has many enterprises, all of which are equally important.

Table of Contents

Comparison Between Perfect Competition And Monopolistic Competition

Parameter	Perfect Competition	Monopolistic Competition
Definition	We argue that the market system is in perfect competition when multiple distinct vendors offer the same commodities to a considerable number of customers.	Monopolistic competition is a kind of market structure that arises when many different sellers give their customers items that are almost indistinguishable from one another. This type of market structure is common in developed economies. There is a possibility that customer choice may suffer under this kind of market structure.
Price	The link that exists between supply and demand in a market will, in the end, determine the price levels that can be found in that market. This relationship determines the price levels that can be discovered.	Customers who have decided to make a purchase from a certain company are the ones who have the power to determine the prices of the goods and services that are offered for sale by that company. Each and every business is responsible for setting its own prices.
Restrictions	In this particular region, there are neither restrictions nor obstacles in place that stand in the way of newly formed businesses whenever they desire to take the step to join the market. This makes it possible for these businesses to enter the market without any problems. Because of this, the path leading to the market entrance is now entirely open.	The presence of significant barriers produces an environment in which new rivals, who try to join this market, are met with significant hostility when they do so for the first time.
Power	The requested price does not fall within the sellers’ reasonable range, given the terms of this transaction. All potential interpretations of the truth hold. Whether we’re discussing the actual price paid or the asked price, this is true in both cases.	The seller in this market sets the prices at which their products are offered to the public, and they are allowed to set these prices at any level they see suitable given their circumstances. This will allow the seller to earn as much as possible from sales and realize their full potential.
Results in	When production has achieved a point of equilibrium, the price of the item or service will equal the cost of producing one additional unit of that good or service. This condition will be true until production reaches a new point of equilibrium.	When the market is in equilibrium, the level of output leads to prices that customers are ready to pay that is higher than the total of all the production expenses. When this occurs, the market is said to be healthy.

Major Difference Between Perfect Competition And Monopolistic Competition

What exactly is Perfect Competition?

When there is complete freedom of trade, the forces of supply and demand determine the level of prices in the market.

Due to the lack of market dominance held by any one business, all firms operating in a completely competitive market are forced to follow the competition in terms of pricing.

Unlike a monopolistic market, firms in a completely competitive market have a negligible market share. Companies may quickly join and leave the industry due to the low barriers to entry.

Key Difference: Perfect Competition

Perfect competition is a market system where several suppliers provide identical products to a large pool of consumers. When there are no barriers to entry, prices drop.

Every company in the business sells its wares at the same price set by the market as a whole, which is the case under perfect competition.

Perfect competition makes entry and exits relatively simple as opposed to monopolistic competition. The demand curve is completely elastic if it has a flat slope.

When firms are in perfect competition, the marginal revenue (MR) and average revenue (AR) curves will be parallel. In fact, there is no such thing as perfect competition.

If all firms in a market were selling the same thing, it would be called a “perfect competition market” (or perfect substitute).

Marginal revenue in a perfectly competitive market is the same as average revenue. Earnings are calculated by multiplying the unit selling price by the quantity sold.

This means that the average revenue is about the same as the revenue divided by the number of units sold. If you sell one more item, your revenue will increase by the margin.

Since all teams are sold at the same rate, the average revenue equals the marginal revenue in perfect competition.

What exactly is Monopolistic Competition?

Firms in a monopolistic market are known as “price makers” because they set the prices at which their products and services are offered.

As a result of corporations’ monopoly over the market, prices in this setting tend to be rather high. High barriers to entry in a monopolistic market mean that even new entrants have difficulty competing with the dominant enterprise.

In a monopolistic market, there is often only one product or service provider, and consumers have no other options for where to make their purchases.

Key Difference: Monopolistic Competition

Monopolistic competition is a market system in which many different vendors provide customers with a wide variety of similar products but not identical.

There is product differentiation in monopolistic competition. Each company in a monopolistic market sets its own prices and sets terms of trade.

A downward-sloping demand curve represents the relatively elastic demand under monopolistic competition.

Since the average revenue under monopolistic competition exceeds the marginal revenue, the business must reduce its price if it wants to boost sales.

Each monopolistically competing business will produce a slightly different level. This is because items in the monopolistic market are different from one another.

Non-price competition, such as advertising and promotion, occurs in the monopolistic market to tell customers about the quality of the product.

Any monopolist in a monopolistic market can only set prices for so long before competitors respond to the “supernormal profit signal” by entering the market themselves.

That being the case, a monopolistic market business that wishes to increase sales must reduce prices.

Contrast Between Perfect Competition And Monopolistic Competition

Description:

Perfect Competition – In a market for a single, standardized good, “perfect competition” has the potential to develop over time as a natural outcome.

This refers to the situation in which the price of the product is defined by the point at which the supply of the product and the demand for the product are equal to one another.

Monopolistic Competition – Products and services provided by businesses operating in a monopolistically competitive market often have a high degree of similarity with one another. They may be readily interchanged with those provided by other firms.

A market that is characterized by monopolistic competition is distinguished by the presence of a large number of producers and retailers. Because there are not many barriers to joining or exiting the market, the level of competition is quite high.

Discrimination:

Perfect Competition – Since prices are chosen in response to the competing forces of supply and demand that are acting in the market, there is no price discrimination on the side of sellers.

This is because prices are established in the market as a reaction to the competing forces of supply and demand. The reason for this is as follows:

Monopolistic Competition – The monopolist is fortunate to be able to freely decide varied pricing for the many different sorts of customers that make up their customer base.

This gives the monopolist an edge over competitors who do not have this ability. This provides the monopolist with a competitive advantage over rivals who do not possess this skill. Because of this position, the monopolist has an advantage over the other businesses in the market.

Supply curve:

Perfect Competition – Because all the companies have already sold their quotas at the current price, analyzing the supply curve is a reasonably simple operation that can be accomplished with very little effort.

This is because all of the companies have already sold their quotas. This is because all the enterprises have already met the sales objectives they had set for themselves at the beginning of the period.

Monopolistic Competition – Since there is no process to determine whether or not there will be price differences while doing business under monopolistic conditions, there is no means to determine the supply curve.

This is because there is a possibility that there may be price discrepancies. As a direct consequence of this, none of the many other doable approaches may be used.

Sellers:

Perfect Competition – Customers that are interested in getting things that are, for the most part, replaceable are in a relatively tiny minority.

These relatively few customers are the focus of intense competition among a large number of retail establishments, all of which are vying for their business.

Monopolistic Competition – When it comes to a service or product for which a sizeable number of customers have indicated that they are interested in obtaining it, there is currently only one supplier that can satisfy all of the criteria for those customers demanding.

This is the case because only one supplier can meet all the standards that those customers demand. This is the circumstance because only one supplier can meet the demand in its current form.

Control over price:

Perfect Competition – Within the parameters of this particular transaction, the price that is being sought does not in any way, shape, or form in any manner, shape, or form in any way at all come within the purview of the sellers in any way at all.

This is true in every possible way. This is the case irrespective of whether we are talking about the amount actually paid or the requested price.

Monopolistic Competition – In this specific market, the seller retains full control over the pricing at which their wares are made accessible for purchase by other consumers.

They are free to establish those prices at whatever level they believe suits their unique situation. Because of this, the vendor will be able to maximize the amount of money they make from their sales and reach their maximum potential.

Frequently Asked Questions (FAQs)

Q1. What are the advantages of having no one company dominate the market?

Because there are no obstacles to the entrance, established businesses cannot gain any monopolistic strength from their position.

There is no deviation from the average profit; thus, the manufacturers recoup their opportunity costs.

Because there is complete information and businesses can sell whatever they make, spending money on promotions is unnecessary.

Q2. What are the four conditions that must be met for there to be an ideal competition?

In the context of economic theory, perfect competition describes a scenario in which all firms sell the same product, market share does not have an impact on price, firms are free to enter or leave the market at any time, consumers have access to complete or perfect information, and businesses are unable to set their own prices.

Q3. What exactly is the primary objective of the monopolist?

The maximization of profits at whatever cost should be a monopolist’s first and foremost priority.

A person who controls a monopoly will have the ability to set the prices of the commodities or items that are going to be offered in an arbitrary manner.

In most cases, this choice is made in a manner that maintains pricing at the highest feasible level while simultaneously serving the demand from customers.

Q4. When there is little room for error in the competition, does this condition have any possible positive aspects that may be capitalized on?

This economic model is considered “perfect” because both allocative and productive efficiencies are concurrently met in a long-run equilibrium under perfect competition.

This satisfies the requirements for stable long-run equilibrium. This is the condition that must exist for there to be equilibrium in the long term.

Q5. What precisely does it mean to compete in a manner that does not imply monopoly, and how does one go about doing so?

In contrast to a market that is monopolistic, a totally competitive market is comprised of a large number of buyers and sellers, and customers have the freedom to choose from a number of different places from which they will purchase the products and services that they need.