Difference Between Monopoly And Perfect Competition

What is Monopoly?

A monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. In a monopoly market, factors like government license, ownership of resources, copyright and patent and high starting cost make an entity a single seller of goods.

All these factors restrict the entry of other sellers in the market. Monopolies also possess some information that is not known to other sellers. Characteristics associated with a monopoly market make the single seller the market controller as well as the price maker. Monopoly enjoys the power of setting the price for his goods.

What is Perfect Competition?

Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information and no transaction costs. There are a large number of producers and consumers competing with one another in this kind of environment.

To make it more clear, a market which exhibits the following characteristics in its structure is said to show perfect competition:

  • Large number of buyers and sellers
  • Homogenous product is produced by every firm
  • Free entry and exit of firms
  • Zero advertising cost
  • Consumers have perfect knowledge about the market and are well aware of any changes in the market. Consumers indulge in rational decision making.
  • All the factors of production, viz. labour, capital, etc, have perfect mobility in the market and are not hindered by any market factors or market forces.
  • No government intervention
  • No transportation costs
  • Each firm earns normal profits and no firms can earn super-normal profits.
  • Every firm is a price taker. It takes the price as decided by the forces of demand and supply. No firm can influence the price of the product.

Monopoly vs Perfect Competition

Basis of DifferencePerfect CompetitionMonopoly
MeaningIt refers to the market in which there are many firms selling a certain homogenous product.A monopoly market is a market structure in which a single firm is a sole producer of a product for which there are no close substitutes available in the market
OutputPrice is equal to the marginal cost at the equilibrium output.Price is greater than the average cost at equilibrium output.
Equilibrium It is possible only when MR=MC and MC cut the MR curve from below.Equilibrium can be realized whether the MC is rising, constant, or falling.
Barriers for entry of new firmsHere, there are no restrictions or barriers for new firms to enter the market.It has strong restrictions for the entry of new firms into the market.
Price DiscriminationThere is no price discrimination by sellers as the prices are determined by supply and demand forces.The monopolist can charge different prices from different groups of buyers.
Supply CurveHere, the supply curve can be identified as all firms sell the desired quantity at the prevailing price.In a monopoly, the supply curve cannot be known because of price discrimination.
Control over PriceHere, the sellers don’t have any control over the price.In this market, the seller has full control over the price.
Sellers are known asIn this market, the sellers are known as price takers.In this market, the sellers are price makers.
Degree of CompetitionThis market has strong competition in the market.There is no competition in the market.
Close SubstitutesIn this market, close substitutes are available. There are no close substitutes for the products in this market.
Number of sellersThere are a large number of sellers with a large number of Buyers offering homogenous products.There is only one single seller of a commodity with a large number of buyers.