Difference between Monopoly and Monopolistic Competition

Difference between Monopoly and Monopolistic Competition-min

The basic difference between Monopoly and Monopolistic Competition is that monopolistic competition involves a small number of sellers with differentiated products. On the other hand, the monopoly market has one single seller for homogenous or differentiated products.

To know the difference between these two, we must clear the meaning of these terms:

Meaning of Monopoly:-

The Monopoly market is a market structure in which a single firm is a sole producer of a product for which there are no close substitutes available in the market. Since there’ is only one seller in the market, it eliminates the rivals and direct competitors. Therefore, the monopolist has full control over its price. Hence, the seller in this market is not known as a price maker. The seller, by itself, determines the price and the quantity to be sold by him in the market.

Since this market consists of a single seller, It abolishes the difference between firm and industry. Hence, it is clear that the firm or market means the same in this market. Example: Railways in India are a monopoly industry of the Government of India.

Meaning of Monopolistic Competition:-

It refers to a market structure where there are many sellers of the product, but, each seller sells a differentiated product. In this, Product differentiation is being promoted through trademarks, brand names, the difference in colour, size, and quality. It can also be in the form of differentiation in services and facilities provided to consumers. For example, Firms producing different brands of toothpaste: Colgate, Pepsodent, Close up and Sensodyne, etc.

In this market, the firm enjoys features of both monopoly and perfect competition markets. Thus, it is a situation between Monopoly and Perfect Competition. Trademark or brand name creates monopoly power for the firm. It means firms can charge a different price for their product. In other words, the firm tends to exercise control over the price. On the other hand, Since there are many producers of a commodity, it brings competition in the market. Thus, no firm has full control over the price. Hence, we can say, in monopolistic competition, the firm has partial control over the price.

Chart of Difference between Monopoly and Monopolistic Competition:

Basis of Difference

Monopoly

Monopolistic Competition

Meaning

It is a market structure in which a single firm is a sole producer of a product for which there are no close substitutes available in the market.

It refers to a market structure where there are many sellers of the product, but, each seller sells a differentiated product.
Product offered

The products offered in this market may or may not be homogenous.

The products offered in this market are differentiated products.

Number of sellers

Monopoly is a single seller market. There is a small number of sellers in this market.
Competition There is no competition n the market due to a single seller. There exists minimal competition among the few sellers present in the market.

Barriers for entry of new firms

It has strong restrictions for the entry of new firms into the market. this market has no absolute freedom for new firms to enter the market.

Price 

The monopolist can charge different prices from different groups of buyers. Thus, it results in price differentiation in the market. In this market, the prices are different for different products due to product differentiation.

Demand Curve

Here, th demand curve is less elastic. Here, the demand curve is more elastic. 

The slope of the demand curve

In this market, the demand curve slopes downward with low elasticity.   In this market, the demand curve slopes downward with high elasticity.  

Price control

In this market, the sellers have full control over the price. In this market, the sellers have partial control over the price.

Profit in the Long run

Here, when AR > AC, the firms earn extra-normal profits in the market. Here. when AR=AC, the firms earn normal profits.

Product Predictability

In this, product predictability is high due to the presence of only one seller. In this, the product predictability is low due to the presence of more number of sellers.

Selling Costs

The monopolist doesn’t need to carry selling costs in advertising the product. Here, the sellers need to advertise their products to gain brand loyalty in the market.

Application

Pure monopoly is rare but the elements of this market can be seen in the market This market is realistic in nature.

Difference between firm and industry

Under this market, There is no difference between firm and industry as one single firm is selling in the market.

Under this market, the firms and industries act as different entities.

Substitute Goods

There are no substitute goods available in the market. In this, the substitute goods are available with different features.

Download the chart of the Difference between Monopoly and Monopolistic Competition:-

If you want to download the chart please download the following image and PDF file:-

Difference between Monopoly and Monopolistic Competition 1 218x300 - Difference between Monopoly and Monopolistic Competition
Difference between Monopoly and Monopolistic Competition 

 

application pdf - Difference between Monopoly and Monopolistic Competition
Difference between Monopoly and Monopolistic Competition

 

 

 

 

 

 

 

Conclusion:

Thus, the primary difference between these two is the number of firms. Monopoly characterized by a single firm by discriminating prices for different consumers. On the other hand, monopolistic competition is defined by a few sellers vying for customers by differentiating on the quality of products. 

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