PERFECT COMPETITION VS MONOPOLISTIC COMPETITION VS OLIGOPOLY VS MONOPOLY

There are four major market structures: perfect competition, monopoly, monopolistic competition, and oligarchy, as you may be aware.

Perfect competition is a market structure with many buyers and sellers of homogenous goods.

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

An oligopoly is a market structure in which a small number of firms control the majority of the market's production.

A monopoly is a market structure where there is only one supplier in the market 

In this post, we will distinguish between the different types of market structures.

Differences between perfect competition vs monopoly

1. Perfect competition is a market structure where many buyers and sellers have perfect knowledge about the market conditions

Monopoly, on the other hand, refers to a market structure in which there is only one supplier.

2. Goods sold in the perfect competition have perfect substitutes while goods sold in a monopoly have no close substitute.

3. In perfect competition, there is freedom of entry; in a monopoly, there are barriers to entry.

4. There is fierce competition in perfect competition due to a large number of sellers.

In contrast, no competition exists in a monopoly because the monopolist is the sole supplier in the market.

5. In the long run, the price of a perfect competitor equals its marginal cost as opposed to a monopoly whose price is greater than its marginal cost in the long run.

6. A perfectly competitive firm cannot price discriminate but a monopolist can price discriminate.

This is because the market price in perfect competition is determined by the forces of demand and supply whereas the monopoly has the power to set prices since it faced no competition.

7. A perfect competitor is a price taker whereas a monopolist is a price maker.

A price maker has market power, whereas a price taker does not have market power. Market power refers to the ability to influence the market price by manipulating the good's demand or supply.

8. The demand curve for a perfect competitor is perfectly elastic whereas the demand curve for a monopolist is downward-sloping.

9. The perfect competitor is allocatively efficient at the equilibrium output.

Monopolies, on the other hand, are not allocatively efficient even at equilibrium.

Allocative efficiency means a firm is producing the goods most preferred by society at a price that equals marginal cost.

10. While a perfect competitor is also productively efficient at equilibrium output, a monopoly is not.

11. Monopoly can earn abnormal profit in the long run but perfect competitors can't earn abnormal profit in the long run. 

RELATED POST: MONOPOLY VS PERFECT COMPETITION

Differences between perfect competition and monopolistic competition

1. A perfect competition is a market structure with many buyers and sellers of identical or homogeneous goods

On the other hand, monopolistic competition is a market structure where there are many buyers and sellers of differentiated goods

2. Perfect competitors are price takers due to their lack of market power, whereas monopolistic competitors are price makers due to their market power.

3.  In perfect competition, there is no barrier to entry, whereas there are low barriers to entry in monopolistic competition.

4. While perfect competitors are allocatively efficient in the long run, monopolistic competitors are not allocatively efficient in the long run

This is because a perfect competitor produces at the output where price equals marginal cost in the long run while a monopolistic competitor does not

5. A perfect competitor is also productively efficient at equilibrium output, whereas a monopolistic competitor is not.

6. The demand curve of a perfect competitor is represented by a horizontal straight line, indicating that demand is perfectly elastic.

The demand curve of a monopolistic competitor is downward sloping but relatively elastic.

7. A perfectly competitive firm's average revenue equals its marginal revenue. In contrast, a monopolistic competitive firm's average revenue is greater than its marginal revenue in all outputs greater than one.

8. Goods sold in monopolistic competition are close substitutes because they have high cross-price elasticity of demand.

Goods sold in perfect competition, on the other hand, are perfect substitutes since they are identical.

READ ALSO: MONOPOLISTIC COMPETITION VS PERFECT COMPETITION – SIMILARITIES AND DIFFERENCES

Differences between perfect competition and oligopoly

1. There are many sellers in perfect competition whereas, in oligopolies, few firms dominate the market.

2. In perfect competition, there is no barrier to entry, whereas, in oligopolies, there are high barriers to entry.

3. In perfect competition, goods sold are identical and thus perfect substitutes.

The goods sold in an oligopoly, on the other hand, can be differentiated or homogenous.

4. In an oligopoly, each seller's decision is influenced by the decisions of the others as and each oligopoly must decide on its market strategies to beat its competitors.

This is opposed to perfect competition, where firms act independent rather than monitor competitors' strategies.

5. Oligopolies have market power and is, therefore, price maker. 

On the contrary, perfect competitors lack market power, and as a result, are price makers.

READ ALSO: OLIGOPOLY VS PERFECT COMPETITION – SIMILARITIES AND DIFFERENCES

Difference Between Monopoly And Monopolistic Competition

1. A monopoly is a market structure in which only one supplier sells goods that have no close substitute, as opposed to monopolistic competition, in which many buyers and sellers of differentiated goods compete.

2. A monopolist can easily price discriminate because of the absence of competition.

In contrast, monopolistic competitors may not be able to price discriminate due to the presence of competition.

3. Abnormal profit is not a feature of monopolistic competition in the long run whereas a monopoly can earn abnormal profit in the long run

4. Monopolistic competition has low barriers to entry, whereas monopoly has high barriers to entry.

5. The demand of a monopolist is less elastic than that of a monopolistic competitor. This is owing to the monopoly's lack of competition.

6. There is no such thing as product differentiation in a monopoly.

This is in contrast with a monopolistic competition where product differentiation is an essential characteristic.

READ ALSO: MONOPOLY VS MONOPOLISTIC COMPETITION – SIMILARITIES AND DIFFERENCES

Differences between Monopoly and Oligopoly

1. A monopoly is a market structure where they are only one seller of goods which has no close substitute.

An oligopoly is a market structure where few sellers dominate the market

2. A monopoly does not face any competition, whereas an oligopoly does.

3. Monopolies set prices based on consumer demand, whereas oligopolies set prices based on the prices of competitors.

4. While monopolies can easily price discriminate due to lack of competition, oligopolies cannot price discriminate.

5. Oligopolies may collude rather than compete as is usually the case with cartels.

There is no room for collusion in a monopoly since there is only one supplier in the market.

6. Monopolies charge higher prices than oligopolies because of the absence of competition.

7. Goods sold in an oligopoly may or may not be differentiated but goods sold in a monopoly do not have close substitutes.

READ ALSO: MONOPOLY VS OLIGOPOLY – SIMILARITIES AND DIFFERENCES

Differences between monopolistic competition and oligopoly

1. A monopolistic competition is a market structure where there are many sellers and buyers of differentiated goods.

On the other hand, an oligopoly is a market structure that is dominated by few sellers.

2. Large barriers to entry exist in oligopolies due to the economies of scales whereas barriers to entry are lesser in monopolistic competition.

3. Firms in an oligopoly may collude rather than compete against one another.

In contrast, firms in monopolistic competition can not collude.

4. There is high interdependence of pricing decisions in Oligopolies.

This is not the case with monopolistic competition, which has some level of price control owing to product differentiation.

READ ALSO: MONOPOLISTIC COMPETITION VS OLIGOPOLY – SIMILARITIES AND DIFFERENCES

Tabular comparisons of the four market structures

Market/featuresPerfect competition Monopolistic competition OligopolyMonopoly
Market powerNone as there are price takersLittleLimitedAbsolute
Economic profitzerozeroPositiveHigh
Allocative efficientyesnonono
Productive efficient yesnonono
Numbers of firmsVery manymanyfewJust one
Ease of entryVery easily Somewhat easily Not easily Difficult
Goods typeHomogenousDifferentiatedHomogenous or differentiatedOne of its  kind

There you have it. Enjoying your read? Kindly subscribe to our newsletter.

Got questions relating to this post? Do well to ask our telegram community.

Help us grow our readership by sharing this post

Related Posts

Post a Comment

Subscribe Our Newsletter