- Monopoly is a market structure where there is only one seller and multiple buyers. Since there are no other sellers, hence the entry and exit barriers are huge in this market structure. In this market structure, it is possible for the seller to make supernormal profits in the long run. There is a deadweight loss in monopoly which is indicative of inefficiency in terms of resource allocation and production.
- Perfect competition is a market structure where there are multiple buyers and multiple sellers. Neither of the sellers is big enough so as to influence the market by their production or pricing decisions. The firms in this market are takers since they have to sell their goods at the market price. The goods sold are homogenous and there is no differentiation. In the long term, no economic profit is made in this market since there are no entry or exit barriers.
- Monopoly and perfect competition are practically markets located on the opposite spectrum in a variety of aspects. In monopoly, there is only one seller while in perfect competition, there are multiple sellers which are small in size. In monopoly, there are very high entry and exit barriers whereas in perfect competition, these do not exist. In monopoly, the seller is price maker while the seller is price taker in perfect competition. In terms of productive and allocative efficiency, perfect competition is the best while monopoly is the worst. In the long run, the monopoly based seller would make supernormal economic profits unlike zero economic profits for perfect competition.
- The various similarities between oligopoly vs monopolistic competition and monopoly vs perfect competition are as follows.
- The number of market participants tends to differ in both the comparisons. While monopoly has one firm, perfect competition has the most. In case of oligopoly there are few competitors while monopolistic competition has higher competition.
- For determining the optimum production level, the profit maximisation condition for all the markets remains the same i.e. MR=MC.
- In the short run, it is possible for the markets in both the comparisons to make economic profit.
- The various differences between oligopoly vs monopolistic competition and monopoly vs perfect competition are as follows.
- The extent of deadweight loss in both comparisons is different. When comparing monopoly and perfect competition, the former has a deadweight loss but the latter does not have any deadweight loss. In the other comparison, firms operating in both oligopoly and monopolistic competition would have some deadweight loss.
- It is very much possible for firms operating under oligopoly and monopolistic competition to make profits over the long term. However, with regards to perfect competition, it is not possible for make any economic profits in the long run. Hence, this is a differentiating factor when both the comparisons are made.
- Another key factor which differs across the two markets comparison is the graph of the demand curve. For monopoly and perfect competition, even though the slope differs but the demand curve is straight line in both cases. However, for the oligopoly the demand curve is kinked and thereby not a straight line.
