Updated November 24, 2023
Difference Between Monopoly vs Perfect Competition
Under a Monopoly market structure, there is one product seller in lieu of various buyers; hence the seller has the full influence to set the price. Therefore, under the monopoly market structure, the seller is a price maker, not a price taker. Also, there are high barriers to entry and exit the market. As a result, not many sellers can enter the market. Under the Perfect Competition market structure, there are large numbers of buyers and sellers in the market, and each firm is taking the same price of the product from the buyers. Each firm is a price taker and not a price maker because there are low barriers to entry and exit in the market. Under perfect competition, all sellers of the product sell identical products.
This Monopoly vs Perfect Competition article will focus on understanding the difference between Monopoly vs Perfect Competition.
A market is a platform where various buyers and sellers of a commodity meet, interact, and strike a deal at a mutually agreed price. There are different kinds and natures of markets that are explained in economics. The various factors which determine what kind of market and the nature of the market are the number of buyers and sellers in the market, the market’s Entry and exit, the power to influence the price in the market, and the intensity of competition.
There is the following number of markets that are present: –
- Perfect Competition
- Imperfect Competition
Head To Head Comparison Between Monopoly vs Perfect Competition (Infographics)
Below is the top 6 difference between Monopoly vs Perfect Competition:
Key Differences Between Monopoly vs Perfect Competition
Both Monopoly vs Perfect Competition are popular choices in the market; let us discuss some of the major differences:
- The key difference between Monopoly vs Perfect Competition is that in the short-run, under perfect competition, the seller will always earn normal profit because there will be abnormal profits due to low barriers for entry and exit. Monopoly market structure, the seller can end up earning abnormal profits in the short run as the seller is a price-maker and not a price-taker
- Under perfect competition, each seller is selling an identical product in the market, and there is no product differentiation in perfect competition. On the contrary, monopoly, since there is only one seller of the product, there is a possibility of price discrimination by the seller in the market. For example, he can sell electricity to some district at a much cheaper price to a district where he can charge the premium on the electricity supplied by the seller.
- In a perfect competition market, there is intense competition among the sellers, and the other sellers will immediately match any decrease in product price. To avoid this, the sellers form a cartel in the market and charge the same price. On the other hand, under a monopoly market structure, the seller can charge the price for the product sold by him at his will. Usually, in a market structure of monopoly, the government keeps a check on the price sold by the seller to avoid price discrimination.
- The price set by the monopoly is generally controlled or monitored by the government to protect the customers’ interest. For example, electricity is an example of a monopoly market with only one producer of the goods. On the other hand, in perfect competition, there is no such price regulation as each seller charges the same price for the product sold.
Monopoly vs Perfect Competition Comparison Table
Below is the 6 topmost comparison between Monopoly vs Perfect Competition
|Can earn abnormal profits in the short-run period
|Cannot earn abnormal profits in the short-run period
|The existence of Price Discrimination
|Price Discrimination is not present
|The non-existence of seller cartel
|Seller cartel is present
|Can play with the quality of the product sold in the market to the buyers
|In perfect competition, each seller is selling identical products in the market
|The demand curve of monopoly is downward sloping
|The demand curve of perfect competition is perfectly elastic
The market is thus a very important platform and a contact point where customers can come and buy the goods. Markets should always act in the interest of the customers as they are always the ultimate users of the good, especially in the case of a monopoly where the seller is free to charge whatever he intends to because there is no competition. In this case, the government should play a major role in levying the price ceiling and initiatives like this to act in the customer’s sole interest and make trade more realistic and justifiable.
This has guided the top difference between Monopoly vs Perfect Competition. Here we also discuss the Monopoly vs Perfect Competition key differences with infographics and a comparison table. You may also have a look at the following articles to learn more.