Difference Between Perfect and Monopolistic Competition

Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

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. However, whereas monopolistic competition is dominated by a single seller and the competition is zero, barriers to entry are also low, sold products can have substitutes, and non-price competition is also present.

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Many small firms manufacture and supply the same goods (or perfect substitutes) to the end-user in perfect competition. Small firms mean each firm is too small to influence the product’s market price.

MonopolisticMonopolisticMonopolistic refers to an economic term defining a practice where a specific product or service is provided by only one entity. Hence the entity supplying the product or service has the dominance in its price-fixing and deciding on the market output.read more competition is whereby a handful of sellers offer a particular product leading to minimal competition. However, each seller’s variants and quality of products are slightly different.

Infographics

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Key Differences Between Perfect and Monopolistic Competition

Perfect Competition Vs Monopolistic Done

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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 us discuss an example. You might have seen different brands of running shoes in the market. What differentiates them from 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 the perfect and monopolistic competition, we cannot 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 ‘bottom-up’ approach where patterns from everyday life are pieced together to correlate demand and supply.read more. Hence, it helps managers and business leaders analyze and understand the prevailing situation in the market to make vital decisions.

There is no end to any analysis because the differences between the research might vary from one analyst to another depending upon their approach and objective. Moreover, the strategy and goal of the management might rely upon the time horizon. For example, short-term and long-term. We hope this article clarifies perfect and monopolistic competition by thinking on the same line.

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