Monopoly vs Perfect Competition

Difference Between Monopoly vs Perfect Competition

Under a Monopoly market structure, there is one seller of the product 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 and not a price taker. Also, there are high barriers to entry and exit the market as a result not many sellers are able to 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. Under this market structure, 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.

In this Monopoly vs Perfect Competition article, we 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 on a mutually agreed price. There are different kinds and nature of markets that are explained in economics. The various factors which determine what kind of market and the nature of the market are the numbers of buyers and sellers in the market, Entry, and exit of the market, the power to influence the price in the market, the intensity of competition.

There is the following number of markets that are present: –

• Perfect Competition
• Imperfect Competition
• Monopoly
• Oligopoly
• Duopoly

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 end up earning normal profit due to the reason that if 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
• Under a perfect competition market, there is intense competition among the sellers and any decrease in the price of the product will be immediately matched by the other sellers in the market, in order 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 in order to avoid price discrimination
• The price set by the monopoly is generally controlled or monitored by the government to protect the interest of the customers, for example, electricity is an example of a monopoly market where it is only one producer of the goods. On the other hand, in perfect competition, there is no such price regulation as each seller is charging the same price for the product sold

Monopoly vs Perfect Competition Comparison Table

Below is the 6 topmost comparison between Monopoly vs Perfect Competition

Monopoly	Perfect Competition
Price Market	Price Taker
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

Conclusion

The market is thus a very important platform and a contact point where the customers can come and buy the goods. Markets should always act in the interest of the customers as they are always the ultimate user of the good, especially when in the case of monopoly where the seller is free to charge whatever he intends to because there is no competition. The government, in this case, should play a major role to levy the price ceiling and initiatives like this to act in the sole interest of the customer and to make trade more realistic and justifiable.

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