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
|
Parameters |
Monopoly |
Monopolistic Competition |
|
|
1. |
Concept |
A monopoly market does not involve any entity apart from a single seller and consumers. The market for the particular product or service is created by the firm, in the first instance. |
A particular product is offered by a handful of entities in the market. The number of market players is less, and there is competition among those entities. |
|
2. |
Player |
Monopoly is a single-player market. |
Monopolistic competition is found in a market of a small number of players. There will be necessarily more than one entity. |
|
3. |
Competition |
The seller in a monopoly market does not experience any competition. |
Few players are present in a monopolistic market. There exists minimal competition among those players in that market. |
|
4. |
Demand and Supply |
In a monopoly market, demand and supply are entirely calibrated by the firm. It is all the more likely that it is skewed in favour of that seller. |
The firms do not exert control over demand and supply owing to the competition between market players. |
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5. |
Entry and Exit |
Given the nature of this market, both entry and exit are difficult. |
On account of competition in a monopolistic market, entry and exit are relatively easier. |
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6. |
Product price |
The existence of a sole player in a monopoly market causes buyers to retain no control over product prices. The price quoted by the seller will have to be accepted by buyers. |
Due to the presence of multiple entities in the market, buyers have the option of purchasing the product or service at a competitive price. This factor is taken into consideration when firms engage in the pricing of their product or service. Hence, due to the availability of options, buyers can influence the price. |
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7. |
Product variety |
Product variants are the sole discretion of a seller. There is no external factor that would cause it to consider extending the variety of products on offer. |
Demand from buyers’ end usually leads market players to launch different varieties of a product on offer. It may also amount to be a differentiating factor from its competitors. |
|
8. |
Product predictability |
Product predictability is high due to the presence of only one seller in a monopoly market. |
More number of players in a monopolistic market makes product predictability low. |
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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