Principal features of a perfectly competitive market and a monopoly market

Q. Outline the differences between a perfectly competitive market and a monopoly market. (Nov’07, Nov’10)/ (Principal features of them, Dec'13).

Perfect Competitive Market: A market with perfect competition is where there are a very large number of buyers and sellers who are buying and selling an identical product. Since the product is identical in all its features, the price charged by all sellers is a uniform price. Economic theory describes market players in a perfect competition market as not being large enough by themselves to be able to become a market leader or to set prices. Since the products sold and prices set are identical, there are no barriers to entry or exit within such a market place.

Monopoly market (Dec'13): A Monopoly market is one where there are a large number of buyers but a very few number of sellers. The players in these types of markets sell goods which are different to each other and, therefore, are able to charge different prices depending on the value of the product that is offered to the market. In a monopolistic competition situation, since there are only a few numbers of sellers, one larger seller controls the market, and therefore, has control over prices, quality and product features.

Difference between Perfect Competition and Monopoly Competition: Perfect and Monopoly competition marketplaces have similar objectives of trading which is maximizing profitability and avoid making losses. However, the market dynamics between these two forms of markets are quite distinct. Monopoly competition describes an imperfect market structure quite opposite to perfect competition. Perfect competition explains an economic theory of a marketplace which does not happen to exist in reality.

Perfect Competition vs Monopoly Competition

Perfect and Monopoly competitions are both forms of market situations that describe the levels of competition within a market structure.

1. A market with perfect competition is where there are a very large number of buyers and sellers who are buying and selling an identical product.

2. A Monopoly market is one where there are a large number of buyers but a very few number of sellers. The players in these types of markets sell goods which are different to each other, and therefore, are able to charge different prices.

3. Monopoly competition describes an imperfect market structure quite opposite to perfect competition.

4. Perfect competition explains an economic theory of a marketplace which does not happen to exist in reality.