DIFFERENCE BETWEEN PERFECT AND MONOPOLISTIC COMPETITION

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.

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