From an economic perspective, a market comprises buyers and sellers. The buyer purchases products or services from the seller, and in turn, the seller tries to promote his products.
In a situation where there are many sellers and there is no interference from the government, it gives rise to strict competition. In a market, there are two types of competitions that exist, namely perfect and imperfect competitions.
A perfect competition is a situation where the price of a commodity is not under the control of the individual sellers and buyers. An imperfect competition is a situation where either the buyer or the seller exercises control over the price of a commodity. There are three types of imperfect competitions, namely monopoly, oligopoly, and monopolistic competition.
What is a Monopoly?
A monopoly is a type of imperfect competition in which a company and its product dominate the sector or industry. This situation arises when there is no competitor in the market for the same product.
Monopolies enjoy a significant market share due to the absence of any competitors. They can control the price of the product by knowing that the product will sell.
Competitors are unable to enter the market due to the high barrier of entry. The organisation can change the prices at their will due to the resources at their disposal, and in this way, kill the competition from small scale manufacturers.
Also Check: Features of Monopoly Market
What is a Monopolistic Competition?
A monopolistic competition is a type of imperfect competition where there are many sellers in the market who are competing against each other in the same industry. They position their products, which are near substitutes of the original product.
In a monopolistic competition, the barriers of entrance and exit are comparatively low. The companies try to differentiate their products by offering price cuts for their goods and services. The examples of such industries are hotels, e-commerce stores, retail stores, and salons.
The following table will help students grasp the most critical points of difference between monopoly and monopolistic competition.
|What does it mean?|
|A monopoly is the type of imperfect competition where a seller or producer captures the majority of the market share due to the lack of substitutes or competitors.||A monopolistic competition is a type of imperfect competition where many sellers try to capture the market share by differentiating their products.|
|Number of players|
|Degree of competition|
|No competition exists, as only one seller is present in the market.||A very high competition exists, as there are many sellers.|
|Barriers to entry|
|High barriers to entry||Low barriers to entry|
|Due to steep demands and only one seller, the price is controlled by the seller.||Some level of price control is exercised by buyers, as many sellers are available in the market.|
This article helps the students to gain a clear understanding of a monopoly and a monopolistic competition, and the key differences between them. For more such exciting articles, stay tuned to BYJU’S.
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