- What is Macroeconomics?
- The Top 10 Economic Indicators
- Real GDP
- Nominal GDP
- Nominal GDP vs Real GDP
- GDP vs GNP
- CRR vs SLR
- Budget Deficit
- Monetary Policy
- Fiscal Policy
- Fiscal Policy vs Monetary Policy
- CPI vs RPI (Top Differences)
- Current Account vs Capital Account
- Balance of Trade
- Balance of Trade vs Balance of Payments
- Bank Rate vs Repo Rate
- Inflation vs Interest Rate
- Repo Rate vs Reverse Repo Rate
- Open Market Operations
- Expansionary Monetary Policy
- Contractionary Monetary Policy
- Recessionary Gap
- Rate of Inflation Formula
- Deflation vs Disinflation
- Foreign Direct Investment
- Normative Economics
- Positive Economics
- Positive Economics vs Normative Economics
- Quantitative Easing
- Differences between Economic Growth and Economic Development
- Macroeconomics vs Microeconomics
- Economies of Scale vs Economies of Scope
- Elastic vs Inelastic Demand
- Finance vs Economics
- Behavioural Economics
- Diseconomies of Scale
- Economic Profit
- Monopoly vs Monopolistic Competition
- Monopoly vs Oligopoly
- Perfect Competition vs Monopolistic Competition
- Disposable Income
Perfect Competition vs Monopolistic Competition Differences
In this article, we understand the differences between Perfect Competition vs Monopolistic Competition with the help of simple examples —
- Perfect Competition is wherein many small firms manufacture and supply 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.
Perfect Competition vs Monopolistic Competition Infographics
Here we provide you with the top 5 difference between Monopolistic competition and Perfect competition
Perfect Competition Vs Monopolistic Competition– Key Difference
The key difference between Monopolistic competition and Perfect competition are as follows –
- In Perfect competition market, each firm sells a homogenous product (or Perfect substitute) whereas in the Monopolistic competition each firm will have slightly different product from each other.
- Since products are slightly different from each other in Monopolistic Market, Non –Price competition like Advertising and Promotion exist in the Monopolistic market to inform buyers about the quality of the product.
- Since the products are slightly different from each other in Monopolistic Market, pricing power exists for a very short period until new players enter the market to exploit the pricing power.
- In Perfect Competition, Marginal Revenue is equal to Average revenue. Total Revenue is defined as a price per unit multiplied by a number of units sold. Therefore, Average revenue will be equal to Total Revenue divided by a number of units sold. Marginal Revenue is defined as the change in the total revenue by selling an additional unit. In perfect competition, since all the units sell at an equal price, Average Revenue equals Marginal Revenue.
- In Monopolistic Competition, any firm can have pricing power for a very little time as any signal of supernormal profit would attract other firms to enter the market. Therefore if a firm in the Monopolistic market wants to sell more of their product, that firm will have to decrease the price and hence the Average revenue will decrease with the increase in the quantity sold. Also, as we all know that the demand curve is downward sloping from left to right, so every time the firm will have to decrease the price of the product to sell an additional product. This is a reason why Marginal Revenue is diverging wider and lower compared to the Average revenue in the Monopolistic Market.
Perfect Competition vs Monopolistic Competition Head to Head Difference
Let’s now look at the head to head difference between Monopolistic competition and Perfect competition
|Basis – Perfect competition vs Monopolistic competition||Perfect Competition||Monopolistic Competition|
|Number of Sellers||Many Firms||Many Firms|
|Barriers to Entry||Very Low||Low|
|Product Differentiation||Homogenous||Substitutes but Differentiated|
|Non-price Competition||None||Advertising and Product Differentiation|
To understand Perfect competition vs Monopolistic competition 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 competition vs Monopolistic competition, can’t we now easily differentiate between the two!!
Perfect Competition vs Monopolistic Competition – Conclusion
As stated earlier, this particular topic is one of the very prominent topics covered extensively in microeconomics 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 vs Monopolistic competition.
This has been a guide to the top difference between Monopolistic competition and Perfect competition. Here we also discuss the Perfect competition vs Monopolistic competition along with infographics and comparison table. You may also have a look at the following articles –