March 12, 2018

Difference Between Monopoly and Monopolistic Competition

March 12, 2018

In economics, market is referred to the situation in which buyers and sellers contact with another to carry on business transactions.  On the basis of competition, the market is divided into perfect and imperfect competition. The imperfect competition is further divided into monopoly, duopoly, oligopoly and monopolistic competition. They are defined below.

Monopoly: Mono refers to a single and poly means control. Monopoly is the market situation when there is a single producer exists in the market selling unique product. He has full control on the price and supply of the product. He has no competitor. He sets his own price for the product or service.

Duopoly: It is the type of imperfect market where two sellers dominate the entire market for a product or service.

Oligopoly: A market situation where few producers or sellers or firms exist in the market who dominate the entire industry. The product they offer may be homogeneous or differentiated.  They have control over the price and output of the product.
Monopolistic competition: It refers to the market situation where a large number of sellers or firms exist in the market. Each firm produces differentiated product in order to maintain its separate identity. There is stiff competition due to a large of number of producers. 

Monopoly and Monopolistic Competition

Difference Between Monopoly and Monopolistic Competition

1. Under monopoly there is only one producer while under monopolistic competition there is a large number of producers.

2. Under monopoly there is no difference between firm and industry, the firm itself is an industry. On the other hand, there are many firms in monopolistic competition which make an industry.

3. There is no competition in monopoly market structure. Conversely, there is stiff competition exists in monopolistic competitive market. 

4. There is no product differentiation in monopoly market. Inversely, there are many producers who produces different products under monopolistic competitive market. The products are differentiated by color, size, weight, shape, packing, quality etc. 

5. A monopolist can adopt the policy of price discrimination to charge different prices from different customers for the same product. Conversely, under monopolistic competition, price discrimination is not possible due to large number of producers and stiff competition.

6. There are many barriers (e.g. legal, economic, technical etc.) on entry of the new firm to the monopoly industry. While under monopolistic competitive market a firm can enter or leave the industry at any time. 

7. Under monopoly a firm earns super normal profit. While under monopolistic competition the firms only earn normal profit.


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