Difference Between Perfect and Monopolistic Competition

Perfect vs Monopolistic Competition Differences

In a perfect competition market there are many competitors, barriers to entry are very low, products that are sold are homogenous and identical, absence of non-price competition whereas a monopolistic competition is dominated by a single seller and the competition is zero, barriers to entry are also low, products that are sold can have substitutes, and non-price competition is also present.

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Perfect Competition is wherein many small firms manufactures and supplies the same goods (or perfect substitute) to the end-user. Small firms mean each firm is too small to influence the market price of the product.

Monopolistic Competition is whereby there are a handful of sellers offer a particular product leading to minimal competition, however, variants and quality of products offered by each seller are slightly different.

Infographics

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Source: Difference Between Perfect and Monopolistic Competition (wallstreetmojo.com)

Key Differences Between Perfect and Monopolistic Competition

Perfect Competition Vs Monopolistic Done

Comparative Table

BasisPerfect CompetitionMonopolistic Competition
Number of SellersMany FirmsMany Firms
Barriers to EntryVery LowLow
Product DifferentiationHomogenousSubstitutes but Differentiated
Non-price CompetitionNoneAdvertising and Product Differentiation
Price PowerNoneSome

To understand these competitions better, let’s discuss an example. You might have seen different brands of running shoes in the market. What differentiates it with each other is the uniqueness of each shoe brand. The difference in the product is informed to buyers through advertisement and promotion (Non-Price Competition) as shown in the table above. Having understood about the perfect and monopolistic competition, can’t we now easily differentiate between the two!!

Conclusion

As stated earlier, this particular topic is one of the very prominent topics covered extensively in microeconomicsMicroeconomicsMicroeconomics is a study in economics that involves everyday life, including what we see and experience. It studies individual behavioural patterns, households and corporates and their policies. It deals with supply and demand behaviours in different markets, consumer behaviour, spending patterns, wage-price behaviour, corporate policies.read more and hence it helps managers and business leaders to analyze and understand the prevailing situation in the market to take vital decisions.

There is no end to any analysis because the differences between the analysis might vary from one analyst to another depending upon their approach and objective. The strategy and goal of the management might depend upon the time horizon, for example, short term and long term. Thinking on the same line, hope this article succeeded in making things clear about perfect competition and monopolistic competition.

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