Difference between Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly [Business Economics Notes NEP Syllabus]

Difference between Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly 
[Business Economics Notes NEP Syllabus]

Perfect Competition Meaning

Perfect Competition is a form of market in which there is a large number of buyers and sellers. They sell homogeneous goods. Firm produces only a small portion of the total output produced by the whole industry.

An industry is a group of different firms producing the same product. A single firm cannot affect the price by its individual efforts. Price is fixed by the industry. Firm is only a price taker and not a price-maker. It can sell the desired output only at the price-fixed by the industry. In such a market, price of the commodity is the same at every place.

There is also free entry and exit of the firms. Both the buyers and sellers have perfect information about the prevailing price in the market. Thus perfect competition is the name given to a market in which buyers and sellers compete with one another in the purchase and sale of a commodity.

Monopoly Market Meaning

Monopoly market is one in which there is only one seller of the product having no close substitutes to the commodities sold by the seller. The seller has full control over the supply of that commodity and also he is the price maker. There being only one firm, producing that product, there is no difference between the firm and industry in case of monopoly. Monopoly is a price maker not the price taker as in the case of perfect competition. Its demand curve slopes downward to the right.

In the words of koutsoyiannis,

“Monopoly is a market situation in which there is a single seller, there are no close substitutes for commodity it produced there are barriers to entry of other firms”.

Monopolistic Competition Meaning

Monopolistic competition, as the name itself implies, is a blend of monopoly and perfect competition.  It refers to the market situation in which many producers produce and sell goods which are closely related to each other and close substitutes but they are not identical. In this respect each firm will have some monopoly at the same time the firm has to compete in the market will other firms as they produce close substitutes.  Also they are large number of sellers who follow an independent price policy.

Thus we can say that monopolistic competition is an intermediate situation between perfect competition and monopoly.

Oligopoly Meaning

“Oligopoly” is a term derived from two Greek words “Oligos” meaning a few “pollein” meaning to sell. Thus Oligopoly refers to that form of imperfect competition where there will be only few sellers producing either a homogenous product which are close substitutes but not perfect substitutes or similar products.

There are only few sellers of a product under oligopoly due to which actions taken by any individual seller have a significant impact on other sellers. There is a personalized competition under oligopoly. All firms act as rivals of each other. The most important feature of oligopolistic market is interdependence in decision making.

Difference between Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly

Basis

Perfect competition

Monopoly

Monopolistic Competition

Oligopoly

1. Number of Buyers and Sellers

There is large number of buyers and sellers.

There exists only one seller.

There is large number of buyers and sellers.

There is only few sellers and large number of buyers.

2. Competition

Presence of perfect competition in such markets.

In monopoly, there is absence of competition.

Competition amongst monopolists

Competition amongst the few sellers.

3. Product

Products are homogenous.

Monopoly may sell homogenous and differentiated products.

Products are different but close substitute of one another.

Similar/identical products

4. Entry or exit of firm

Freedom of entry or exit in perfect competition.

Entry of new firms in the market is restricted.

Freedom of entry or exit of firms into the market.

Blocked entry / threat to entry of new firms.

5. Elasticity

Demand is perfectly elastic.

Demand is inelastic

Demand is highly elastic.

Indefinite demand.

6. Decision making

Independent decision- making by firms.

Total freedom in decision making

Independent decision making

Decision of one firm may affect the decision of other firm.

7. Price maker or taker

Firms are Price taker in perfectly competitive market.

Monopolist is price maker.

Prices are competitive in monopolistic competition.

Prices are competitive in monopolistic competition.

8. Selling cost

There is no scope of selling costs.

No need to incur selling costs.

Selling costs are important in monopolistic competition.

Selling costs are most important in oligopoly.

9. Equilibrium

Equilibrium with rising marginal cost.

Equilibrium with rising, falling and constant marginal cost.

Equilibrium when MR = MC

Equilibrium with kindly demand curve.

10. Practicability

It is an imaginary market. It is not seen in real life.

It is rarely seen.

It is a real market situation.

Such market condition presently exists.

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