MONOPOLY VS MONOPOLISTIC COMPETITION: SIMILARITIES AND DIFFERENCES

Monopoly and monopolistic competition have similarities and differences.

That's what we'll be talking about today.

Monopolistic competition is a market structure where there are many buyers and sellers of slightly differentiated goods.

It is a market structure very similar to perfect competition, except that goods are slightly differentiated.

Monopoly, on the other hand, is a market structure where a firm is the sold supplier in the market.

It is the polar opposite of perfect competition.

Similarities between monopoly and monopolistic competition

1. Both maximize profit: Like every firm, both monopolists and monopolist competitors seek to maximize profit.

When we say they maximize profit, we imply they produce when marginal revenue equals marginal cost.

2. Both have a downward-sloping demand curve: Both monopolists and monopolistic competitors have a downward-sloping demand curve, indicating that the price they charged and the quantity demanded are inversely related.

3. Both have a marginal revenue curve that is lower than the demand curve: For all output greater than one, the marginal revenue curve for both monopoly and monopolistic competitors lies below the demand curve.

4. Excess capacity is present in both market structures: Excess capacity exists under both monopoly (or, more precisely, natural monopoly) and monopolist competition because the demand curve is not tangent to the long-run average costs (LAC) curve at its lowest point.

5. Both are price makers: Monopolistic competitive firms and monopolists are price makers (or searchers) because they have some control over their prices.

6. Both are allocatively inefficient: As both Monopolistic competitive firms and monopolies are at equilibrium where Price is greater than marginal cost, it follows that both are not allocative efficient.

Allocative efficiency means producing the goods and services most wanted by the consumers at a price that equals marginal cost. If the price that a firm receives does not equal marginal cost, the firm is allocative efficient. 

7. Both are productively Inefficient: Since both will produce where the price is greater than the minimum of the long-run average cost, it can be inferred that they are both productively inefficient.

Productive efficiency means producing without waste so that the choice is on the PPC. Productive efficiency also refers to a company's ability to produce at the lowest possible cost by producing at the output where marginal cost and average cost are equal.

READ ALSO:PERFECT COMPETITION VS MONOPOLY VS MONOPOLISTIC COMPETITION VS OLIGOPOLY

Difference Between Monopoly And Monopolistic Competition

1. There is one supplier in a monopoly while there are many suppliers in monopolistic competition competition

2. Building on the previous point, the distinction between firm and industry is irrelevant in monopoly because there is no difference between the firm and industry.

On the contrary, the distinction between firm and industry is highly relevant to monopolistic competition because there is a difference between the firm and industry.

3. While there are high barriers to entry in monopoly, there are low and easily surmountable barriers to entry in monopolistic competition

4. In the Long run, due to the existence of high barriers to entry, a monopoly may earn abnormal 

In contrast, because there are few barriers to entry, it is very unlikely that a monopolistic competitive firm will earn economic profit in the long run.

5. Competition is not a feature of a monopoly due to high barriers to entry, but it is a feature of monopolistic competition due to easily surmountable barriers to entry.

6. Due to the lack of competition,  a monopoly can charge a higher price than a monopolistic competitive firm

7. Close substitutes exist for goods sold in a monopolistic competitive market, but no close substitute exists for goods sold in a monopoly.

8. The demand curve of a monopoly is steep indicating that it is less elastic than that of a monopolistic competitor.

In contrast, the demand curve of a monopolistic competitive firm is flatter indicating that it is more elastic than that of a monopolist

9. Unlike a monopoly, where price discrimination is possible, It is not possible to price discriminate in monopolistic competition because the goods are close substitutes, allowing the consumer to purchase from other sellers

More so, a monopolistic competitor also cannot price discriminate because its market can't be divided into elastic and inelastic segments.

10. Product differentiation and non-price competition (advertising) are common in monopolistic competition.

On the contrary, Product differentiation and non-price competition are absent in a monopoly as the firm does not need to differentiate its product because it faced no competition.

11. Although both have some control over their price, a monopoly has more market power than a monopolistic competitor because it faces no competition

12. In contrast to monopolistic competition, where no single individual can exert control over the market supply, a monopoly can single-handedly influence the supply of goods in the market.

READ ALSO: PERFECT COMPETITION VS MONOPOLY

Tabular representation of the differences between monopoly and monopolistic competition

Market/featuresMonopolyMonopolistic competition
Numbers of firms One many
Barriers to entryVery highVery low
Demand curvesteepFlatter
The distinction between firm and industryNot relevantRelevant
Nature of goodsGoods have no close substituteGoods have Close substitutes
Price discrimination Possible Impossible
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