DIFFERENCE BETWEEN PERFECT COMPETITION & MONOPOLY

In this post you will study about difference between Perfect competition & Monopoly.

PERFECT COMPETITION

A Perfect Competition market is that type of market in which the number of buyers and sellers is very large, all are engaged in buying and selling a homogeneous product without any artificial restrictions and possessing perfect knowledge of the market at a time.

ACCORDING TO MRS. JOAN ROBINSON

“Perfect Competition prevails when the demand for the output of each producer is perfectly elastic.”

ACCORDING TO BOULDING

“A Perfect Competition market may be defined as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodities, who are in close contact with one another and who buy and sell freely among themselves.”

MONOPOLY

The word monopoly has been derived from the combination of two words i.e., ‘Mono’ and ‘Poly’. Mono refers to a single and poly to control.

In this way, monopoly refers to a market situation in which there is only one seller of a commodity.

There are no close substitutes for the commodity it produces and there are barriers to entry. The single producer may be in the form of individual owner or a single partnership or a joint stock company. In other words, under monopoly there is no difference between firm and industry.

Monopolist has full control over the supply of commodity. Having control over the supply of the commodity he possesses the market power to set the price. Thus, as a single seller, monopolist may be a king without a crown. If there is to be monopoly, the cross elasticity of demand between the product of the monopolist and the product of any other seller must be very small.

The difference between Perfect Competition & Monopoly is as follows:

BASIS OF DIFFERENCE	PERFECT COMPETITION	MONOPOLY
BUYERS AND SELLERS	Large number of buyers and sellers.	Single seller but large number of buyers.
DEMAND ELASTICITY	Demand is perfectly elastic.	Demand is inelastic.
COMPETITION	Competition is there.	No competition is there.
OUTPUT AND PRICE	Under perfect competition price is equal to marginal cost at the equilibrium output.	While under monopoly, the price is greater than average cost.
EQUILIBRIUM	Under perfect competition equilibrium is possible only when mr = mc and mc cuts the mr curve from below.	But under simple monopoly, equilibrium can be realized whether marginal cost is rising, constant or falling.
ENTRY AND EXIT OF FIRMS	Under perfect competition, there exist no restrictions on the entry or exit of firms into the industry.	Under simple monopoly, there are strong barriers on the entry and exit of firms.
PRICE DISCRIMINATION	Under simple monopoly, a monopolist can charge different prices from the different groups of buyers.	But, in the perfectly competitive market, it is absent by definition.
PROFITS	Under perfect competition, a firm in the long run enjoys only normal profits.	The difference between price and marginal cost under monopoly results in super-normal profits to the monopolist.
SUPPLY CURVE OF THE FIRM	Under perfect competition, supply curve can be known. It is so because all firms can sell desired quantity at the prevailing price. Moreover, there is no price discrimination.	Under monopoly, supply curve cannot be known. Mc curve is not the supply curve of the monopolist.
SLOPE OF DEMAND CURVE	Under perfect competition, demand curve is perfectly elastic. It is due to the existence of large number of firms. Price of the product is determined by the industry and each firm has to accept that price.	On the other hand, under monopoly, average revenue curve slopes downward. Ar and mr curves are separate from each other. Price is determined by the monopolist.

CONCLUSION

In a monopoly market, it is possible for a firm to charge distinct prices from various customers, for the same product. So, the firm can adopt price discrimination policy. On the other hand, as non-price competition is prevalent in the market, therefore, price discrimination is not possible, so, no firm can charge different prices from different customers.

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Types of demand	Managerial economics	Characteristics of managerial economics	Scope of managerial economics
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Concept of costs	Relationship between AC and MC	Traditional theory of costs	Modern theory of costs
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