Difference Between Perfect Competition and Monopolistic Competition

Perfect Competition vs Monopolistic Competition

Perfect and monopolistic competitions are both forms of market situations that describe the levels of competition within a market structure. Perfect competition and monopolistic competition are different to each other in that they describe completely different market scenarios that involve differences in prices, levels of competition, number of market players and types of goods sold. The article gives a clear outline of what each type of competition means to market players and consumers and shows their distinct differences.

What is Perfect Competition?

A market with perfect competition is where there are a very large number of buyers and sellers who are buying and selling an identical product. Since the product is identical in all its features, the price charged by all sellers is a uniform price. Economic theory describes market players in a perfect competition market as not being large enough by themselves to be able to become a market leader or to set prices. Since the products sold and prices set are identical, there are no barriers to entry or exit within such a market place.

The existence of such perfect markets are quite rare in the real world, and the perfectly competitive marketplace is a formation of economic theory to help better understand other forms of market competition such as monopolistic and oligopolistic.

What is Monopolistic Competition?

A monopolistic market is one where there are a large number of buyers but a very few number of sellers. The players in these types of markets sell goods which are different to each other and, therefore, are able to charge different prices depending on the value of the product that is offered to the market. In a monopolistic competition situation, since there are only a few number of sellers, one larger seller controls the market, and therefore, has control over prices, quality and product features. However, such a monopoly is said to last only within the short run, as such market power tends to disappear in the long run as new firms enter the market creating a need for cheaper products.

What is the difference between Perfect Competition and Monopolistic Competition?

Perfect and monopolistic competition marketplaces have similar objectives of trading which is maximizing profitability and avoid making losses. However, the market dynamics between these two forms of markets are quite distinct. Monopolistic competition describes an imperfect market structure quite opposite to perfect competition. Perfect competition explains an economic theory of a marketplace which does not happen to exist in reality.

Summary:

Perfect Competition vs Monopolistic Competition

Perfect and monopolistic competitions are both forms of market situations that describe the levels of competition within a market structure.

A market with perfect competition is where there are a very large number of buyers and sellers who are buying and selling an identical product.

A monopolistic market is one where there are a large number of buyers but a very few number of sellers. The players in these types of markets sell goods which are different to each other, and therefore, are able to charge different prices.