Differences Between Monopoly and Monopolistic Competition in Detail

From an economic lens, the market is a dynamic space where buyers and sellers interact. Buyers acquire goods or services from sellers, who, in turn, strive to market their offerings. When numerous sellers operate without governmental intrusion, it leads to intense contest. In any given market, two forms of rivals can be observed: perfect and imperfect. Perfect competition is a design where neither the individual sellers nor the buyers can affect a commodity's price. On the other hand, imperfect competition is a case where the buyer or the seller can use the price of an item. Imperfect competition can further be tagged into monopoly, oligopoly, and monopolistic competition.

Understanding Monopoly

A monopoly is a form of imperfect competition where a single firm and its product hold sway over an entire sector or industry. This typically happens when no rival in the market offers the same product.

Monopolies command a notable market share due to the lack of competition. They can control the product's price, knowing that the demand for their product is insured.

The barriers to entry in a monopoly are high, deterring rivals from entering the market. The monopoly can exploit prices at their discretion, using their great aids to stifle competition from small-scale manufacturers.

Also Check: Characteristics of Monopoly Market

Decoding Monopolistic Competition

Monopolistic competition, another form of imperfect competition, is described by many sellers in the market competing against each other within the same industry. They offer products that are close substitutes for the original product.

In a monopolistic competition, the barriers to entry and exit are relatively low. Firms try to stand out by offering discounts on their goods and services. This rival is typically seen in restaurants, online shopping platforms, brick-and-mortar stores, and beauty parlors.

Differences Between Monopoly and Monopolistic Competition

The following table presents the fundamental differences between monopoly and monopolistic competition.

Conclusion

The primary distinction between monopoly and monopolistic competition lies in the number of firms product differentiation, and each firm has control over pricing. A single seller with exclusive control over the market and no product differentiation characterizes a monopoly. Monopolistic competition, on the other hand, features many firms that produce slightly differentiated products, compete on various factors, and have limited but non-negligible pricing power. Understanding these differences is important for economists, businesses, and policymakers when analyzing market structures and their implications for competition and client choice.

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