Monopoly vs. Monopolistic Competition: Key Differences

Introduction

Market, by its very nature, leads to the formation of both perfect and imperfect competition within it. Imperfect competition can be further categorized into oligopoly, monopoly, and monopolistic competition.

Let's find out more about monopoly and monopolistic competition!

What is a Monopoly?

Monopoly has such a type of market structure, where there is only one firm present in it. This firm enjoys absolute power in producing and selling the product or service. Products offered in a monopoly market do not have any close substitutes. 

Monopoly is most likely to be found in the public utility sector.

Also, the combined effect of various characteristics of the monopoly market ensures that the market player is a sole price setter. Buyers cannot influence prices. Price is set by the firm taking into account the demand elasticity of a product, product demand, and maximization of profit.

Example of Monopoly

An instance of monopoly competition can be found in the government sector. Government has a monopoly over infrastructure such as dams, railways etc.

These sectors count as a monopoly market with the government as the only entity because the competition is non-existent. The characteristics of the services and products in such a market are determined by the government.

What is Monopolistic Competition?

Monopolistic competition is the market setting that includes differentiated products offered by a handful of sellers present in the market. Product differentiation is undertaken through packaging, brand name, trademark etc. 

Monopolistic competition is evident in the manufacturing industry. 

The characteristics of monopolistic competition such as differentiated products and a handful of sellers influence the prices of products or services. Consumers in a monopolistic market buy more products when prices are comparatively lower. Firms set product prices, taking into consideration marginal cost and revenue as well as profit maximization.

Example of Monopolistic Competition

Monopolistic competition can be seen on television programmes. With the advent of globalization, consumers have greater choice in the variety of shows from which to choose. The television programmes offered across the world are also diverse. However, there are only a few companies that broadcast those shows.

Major differences between monopoly and monopolistic competition have been discussed below.

Monopoly vs Monopolistic Competition

It can be understood that, in a monopoly market, the seller has the discretion to charge different prices to different sets of customers. It is known as price discrimination. However, in monopolistic competition, there exists non-price competition. Sellers in this market cannot adopt a price discrimination policy for their customers.

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