MONOPOLY AND MONOPOLISTIC COMPETITION

A market is made up of buyers and sellers from an economic standpoint. The customer acquires goods or services from the vendor, and the merchant then attempts to market his goods. When there are a lot of vendors and no government involvement, it leads to fierce competition. There are two sorts of contests in a market: perfect and imperfect competitions. A situation in which the price of a product is not within the control of individual vendors and purchasers is referred to as perfect competition. An imperfect competition situation occurs when either the buyer or the supplier has pricing control over a commodity. Imperfect competitions are classified into three types: monopoly, oligopoly, and monopolistic competition.

What exactly is a monopoly?

Monopoly is a sort of market arrangement in which there is only one enterprise present. This company has complete control over the production and sale of the product or service. There are no close replacements for products sold in a monopolistic market. The public utility industry is the most likely to have a monopoly.

Furthermore, the cumulative effect of the monopoly market’s numerous features assures that the market participant is the single price setter. Prices cannot be influenced by buyers. The company determines the price by considering the demand elasticity of a product, product demand, and profit maximisation.

Example of Monopoly

The government sector is an example of monopoly competition. The government has a monopoly on infrastructure such as dams and railways.

Because competition is non-existent in certain industries, they qualify as a monopoly market with the government as the sole entity. The government determines the features of the services and goods in such a market.

What exactly is monopolistic competition?

Monopolistic competition is a market situation that comprises distinct items supplied by a small number of suppliers. Product distinction is accomplished by packaging, brand name, trademark, and so forth.In the industrial business, monopolistic competition is visible.

Monopolistic competition features such as distinct items and a small number of vendors impact product or service prices. When prices are lower in a monopolistic market, consumers buy more things. Firms establish product pricing based on marginal cost and revenue, as well as profit maximisation.

Example of Monopolistic Competition

On television, monopolistic competition can be apparent. With the rise of globalisation, customers now have a broader selection of shows from which to pick. The television programmes available throughout the world are likewise different. However, those shows are exclusively televised by a few firms.

The major distinctions between monopoly and monopolistic competition are addressed further below.

1. Nature of Product: The product produced under monopoly may or may not be homogenous. However, there is always product differentiation under monopolistic competition.
2. Number of Buyers and Sellers: There are numerous buyers but just one vendor in a monopoly. On the other hand, because there are close replacements for the product under monopolistic competition, there are numerous sellers of a product.
3. Entry and Exit: When there is a monopoly, there are significant hurdles to entry for new enterprises. Monopolistic competition, on the other hand, allows for new enterprises to enter and quit the market. However, it is only conceivable in the long term, not in the short run.
4. Degree of Knowledge: We assume that sellers and purchasers have perfect knowledge of market operations when there is a monopoly. However, in monopolistic competition, consumers and sellers have incomplete knowledge.
5. Revenue Curves: In monopoly, sellers are price takers. They are unable to adjust their prices because there is no close competition. On the other hand, when there is monopolistic competition, sellers can adjust their prices.Under a monopoly, the revenue is maximised when marginal revenue equals marginal cost. On the other hand, a monopolistic competitor can establish price based on a variety of factors.
6. Decision-Making: A monopoly or monopolistic competition prevents a corporation from determining both its pricing and its output at the same time. When there is monopolistic competition, the company must spend more money on selling costs. Under monopoly, on the other hand, the corporation is only needed to spend a limited amount on selling costs.
7. Nature of Profits: In the short run, the business can make super-normal profits, regular profits, or lose money under monopoly and monopolistic competition. However, in the long term, firms subject to monopolistic competition will only make typical earnings.

Conclusion

In a monopolistic market, a company can charge different prices to different clients for the same product. As a result, the company can pursue a pricing discrimination strategy. However, because non-price competition is common in the market, price discrimination is impossible, and no business may charge different rates to different clients.