Difference Between Monopoly and Monopolistic Competition

From an economic perspective, a market comprises buyers and sellers. The buyer purchases products or services from the seller, and in turn, the seller also 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 exist two types of competition, namely, perfect and imperfect competition.

Perfect competition is a situation where the price of a commodity is not under the control of individual sellers and buyers. Imperfect competition is a situation where either the buyer or seller exercises controls over the price of a commodity. There are three types of imperfect competition, namely, monopoly, oligopoly and monopolistic competition.

What is Monopoly

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 competitor. They can control the price of the product, knowing that the product will sell.

Competitors are unable to enter the market due to the high barrier of entry. The organization 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 Monopolistic Competition

Monopolistic competition is that 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 product, which is a near substitute of the original product.

In monopolistic competition, the barriers to entry 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 industry 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.

Basis of Comparison Monopoly Monopolistic Competition
Definition Monopoly is the type of imperfect competition where a seller or producer captures the majority of market share due to lack of substitutes or competitors Monopolistic competition is a type of imperfect competition where many sellers try to capture market share by differentiating their products.
Number of Players One Many
Degree of Competition Nil competition exists as only one seller present in the market Very high competition exists as there are many sellers
Barriers to Entry High barriers to entry Low barriers to entry
Demand Curve Steep Flat
Price Control Due to steep demand and only one seller, price is controlled by the seller Some level of price control exercised by buyers as many sellers available in the market.

This article helps the students to gain a clear understanding of monopoly and monopolistic competition and the key differences between them. For more such exciting articles, stay tuned to BYJU’S.