Question

Compare and contrast monopoly with monopolistic competition. In your answer, consider number of firms, product differentiation, market share, and pricing/ profits.

Answer 1

The monopoly refers to a kind of imperfect competition. Under this type of market structure there will be only a single seller. The market will be controlled by a single seller. The main feature of monopoly market is that there will be no substitutes for the products offered.

On the other hand monopolistic competition is the market where many firm offers products to the individuals. The market contains large number off Sellers as well as buyers.

MARKET SHARE

Under monopoly the firm will Have large market share though there is only a single player. The market will be under single ownership. The firm will have large number of customers under monopoly.

In, monopolistic competition there will be large number of sellers who offers almost similar type off goods. So the market share of each firm will be too less. It affects the profitability of the firms.

NUMBER OF FIRMS

In monop0oly market there is only a single firm. The firm will have complete right to take decision regarding the price of goods. The market will be under the complete control of the single firm.

The number of firms is monopolistic competition is comparatively high. There will be large number of sellers in the market. The firms will compete each other to earn huge profits.

PRODUCCT DIFFERNTIATION

Monopoly firms follow absolute differentiation in the products offered. The substitutes of a particular product will not be available in a monopoly firm. Though monopoly have only single seller product differentiation is possible.

In monopolistic competition have no perfect differentiation in the products offered. They usually sells almost similar p[products.

PROFFITS

The monopoly firm will have complete control in deciding the price of the product. Thus he will be the sole owner of all the profits earned. The seller has the authority to decide the prices.

The profits will be comparatively less in monopolistic competition. A seller cannot determine the price for goods by himself. It is the demand and supply determines the price. Therefore the profits earned also will be low.

ENTRY BARRIERS

There are high barriers to entry in monopoly market. It prevents the entry of other firms to the monopoly market.

The entry barriers are comparatively low in the case of monopolistic competition. Free entry and exit is the important feature of mono0polistic completion.

COMPETITON

There is no competition in monopoly market. There is only single seller. The market is under control of a particular firm.

The competition is too high in the case off monopolistic competition. There is large number of seller so the competition is high.