contador Saltar al contenido

Difference between monopoly and monopolistic competition

The monopoly refers to a market structure in which a single seller dominates the entire market by selling its unique product. On the other hand, monopolistic competition refers to the competitive market, where few market sellers offer almost substitutes to customers.

In economics, the market is not just a place where the parties engage in an exchange of goods or services for money, but refers to a system in which there are many buyers and sellers for a product or service that has a complete knowledge of the market conditions, which negotiate and set the price of the product to make the deal. The market is classified into various categories such as area, time, regulation, competition and so on.

Based on competition, the market divided as perfect competition and imperfect competition. Furthermore, there are three types of imperfect competition, monopoly, oligopoly and monopolistic competition. Many people have difficulty understanding the difference between monopoly and monopolistic competition, so we've simplified it here for you.

Comparative graph

Basis for the comparison Monopoly Monopolistic competition
Sense The monopoly refers to a market structure in which a single seller produces / sells the product to a large number of buyers. Monopolistic competition is a competitive market in which there are many sellers who offer differentiated products to a large number of buyers.
Number of players One From two to ten or even more.
Product differentiation Extreme light
Degree of control over the price Remarkable but very regulated. Some
competition Does not exist. There is strong competition between companies.
Demand curve steep Dish
Barriers to entry and exit Lot of No
Difference between company and industry No s

Definition of Monopoly

A type of market structure, in which the company has the absolute power to produce and sell a product or service that does not have close substitutes. In simple terms, the monopolized market is one in which there is only one seller, who sells a product with almost no substitute for a large number of buyers. Since the company and industry are the same thing in the monopoly market, therefore a single company industry. There is a zero or negative cross-demand elasticity for a monopoly product. The monopoly can be found in utilities such as telephone, electricity and so on.

Within this marketing approach, a company is the price setter; however, the price of the product is determined taking into account the elasticity of the demand for the product, so that the demand for the product and the profit is maximum. See the diagram below:

where MR = Marginal Revenue AR = average income MC = Marginal cost AC = Average cost

Definition of monopolistic competition

A market context in which sellers' scores sell a differentiated product called monopolistic competition. The products are differentiated by brand, packaging, shape, size, design, brand, etc. Although the product sold by various companies in the sector remains a strict substitute for rivals, as the products are not identical but similar. Monopolistic competition prevailing in the manufacturing industry, such as t, shoes, refrigerators, toothpaste, televisions, etc. The salient features of monopolistic competition are the following:

  • A large number of sellers.
  • Differentiated products, but substitute substitutes.
  • Free entry and exit from the sector.
  • Perfect mobility of factors
  • Full knowledge of market conditions

Based on this approach, consumers buy more when product prices are lower than higher prices. Comparing the marginal revenue with the marginal cost, the profit of the company can be maximized, as can be seen in the following diagram:

As you can see in the diagram, the point where MR (Marginal Revenue) and MC (Marginal Cost) meet the price level, where P1 is the price and Q1 is the output to be produced.

Key differences between monopoly and monopolistic competition

The following points are noteworthy as regards the difference between monopoly and monopolistic competition:

  1. A market structure in which a single seller produces / sells the product to a large number of buyers is called a monopoly. A competitive market in which many sellers offer differentiated products to a large number of buyers is called monopolistic competition.
  2. There is a single seller / producer in a monopoly market while there may be two to ten or more players in the monopoly competition.
  3. In a monopolistic market structure, the seller offers a single product and there is an extreme product differentiation. On the contrary, in a monopolistic competition, since the products offered by different vendors are close substitutes, and so, there is a slight differentiation of the product.
  4. In a monopolistic market, the degree of control over the considerable but regulated price. On the contrary, in a monopolistic competition, there is a certain control over the price.
  5. No competition exists in a monopoly market, while fierce competition due to non-price competition exists among companies as a competitive monopoly market.
  6. Since there are no close substitute products of the product, the demand for the product in an inelastic monopoly. Contrary to monopolistic competition, since the products offered by the different vendors are not identical but similar, its demand is therefore very elastic.
  7. Under the monopoly, there are high barriers to entry and exit, due to economic, legal and institutional causes. On the other hand, in monopolistic competition, there is an unrestricted entry and exit from the industry.
  8. Since a single company regulates the entire market, there is no difference between business and industry in the monopoly. So a single-company industry. Unlike monopolistic competition, there is the difference between business and industry, that is, a single entity and a group of companies called industry.

Conclusion

In a monopoly market, it is possible for a company to charge separate prices from various customers for the same product. Thus, the company can adopt a policy of price discrimination. On the other hand, since non-price competition prevails in the market, therefore, price discrimination is not possible, so no company can charge different prices from different customers.