PERFECT AND MONOPOLISTIC COMPETITION

DIFFERENCE BETWEEN PERFECT AND MONOPOLISTIC COMPETITION

In this post you will learn about perfect and monopolistic competition differences.

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.

MONOPOLISTIC COMPETITION

The concept of monopolistic competition was put-forth by an American economist Prof. E.H. Chamberlin in his popular book, “The Theory of Monopolistic Competition” published in 1933.

Monopolistic competition is a type of imperfect competition market structure in which a large number of firms produce differentiated products and there are no barriers to entry.

The difference between perfect and monopolistic competition is as follows:

BASIS FOR COMPARISON	PERFECT COMPETITION	MONOPOLISTIC COMPETITION
MEANING	A market structure, where there are many sellers selling similar goods to the buyers, is perfect competition.	Monopolistic Competition is a market structure, where there are numerous sellers, selling close substitute goods to the buyers.
PRODUCT	The product is Standardized and uniform in perfect competition.	The products are Differentiated in monopolistic competition.
PRICE	Determined by demand and supply forces, for the whole industry.	Every firm offer products to customers at its own price.
SELLING COSTS	There is no selling costs.	The firms have to incur huge expenditure on advertisement to sell their products. So heavy selling costs exists.
ENTRY AND EXIT	There are no barriers to entry and exit of firms.	There exists Few barriers on entry and exit of firms.
DEMAND CURVE SLOPE	The demand curve is Horizontal line.	The demand curve is Downward sloping.
ELASTICITY OF DEMAND	The demand is perfectly elastic.	The demand is relatively elastic.
RELATION BETWEEN AR AND MR	AR = MR	AR > MR
SITUATION	This is an Unrealistic situation.	This is a Realistic situation.

CONCLUSION

The perfect competition and monopolistic competition are different, where monopolistic competition has features of both monopoly and perfect competition. The principal difference between these two is that in the case of perfect competition the firms are price takers, whereas in monopolistic competition the firms are price makers.

Also Study	Also Study	Also Study	Also Study
Theory of Demand	Law of Demand	Demand Function	Exceptions of law of demand
Elasticity of demand	Change in demand	Price elasticity of demand	Law of demand Vs Elasticity of demand
Factors affecting price elasticity of demand	Production function	Short run vs long run production function	Law of variable proportions
Types of demand	Managerial economics	Characteristics of managerial economics	Scope of managerial economics
Utility analysis	Law of diminishing marginal utility	Law of equi marginal utility	Consumers Equilibrium
Indifference curve analysis	Consumer equilibrium using indifference curve analysis	Relationship between TP, AP and MP	Law of increasing returns
Law of diminishing returns	Law of constant returns	Returns to Scale	Economies and diseconomies of scale
Concept of costs	Relationship between AC and MC	Traditional theory of costs	Modern theory of costs
Explicit vs Implicit costs	Revenue	Perfect competition	Monopoly
Price discrimination	Difference between perfect competition and monopoly	Perfect Vs Monopolistic competition	Monopoly and monopolistic competition
Product differentiation strategy	Monopolistic competition	National Income in India	Measurement of national income in India
Consumption function	Keynes Psychological law of consumption