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Difference between Monopoly and Monopolistic Competition

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The number and types of firms operating in an industry and the nature and degree of competition in the market for the goods and services is known as Market Structure. To study and analyze the nature of different forms of market and issues faced by them while buying and selling goods and services, economists have classified the market in different ways. The different forms of market structure are Perfect Competition and Imperfect Competition (Monopoly, Monopolistic Competition, and Oligopoly).

Difference-between-Monopoly-and-Monopolistic-Competition-copy

What is Monopoly?

Monopoly is a completely opposite form of market and is derived from two Greek words, Monos (meaning single) and Polus (meaning seller). A market situation where there is only one seller in the market selling a product with no close substitutes is known as Monopoly. For example, Indian Railways. In a monopoly market, there are various restrictions on the entry of new firms and exit of existing firms. Also, there are chances of Price Discrimination in a Monopoly market. 

What is Monopolistic Competition?

A Monopolistic Competition Market consists of the features of both Perfect Competition and a Monopoly Market. A market situation in which there is a large number of firms selling closely related products that can be differentiated is known as Monopolistic Competition. The products of monopolistic competition include toothpaste, shampoo, soap, etc. For example, the market for soap enjoys full competition from different brands and has freedom of entry showing the features of a perfect competition market. However, every soap has its own different features, which allows the firms to charge a different price for them. It shows the features of a Monopoly Market. 

Difference between Monopoly and Monopolistic Competition

Basis

Monopoly

Monopolistic Competition

Meaning It is a market situation where there is only one seller in the market selling a product with no close substitutes. It is a market situation in which there is a large number of firms selling closely related products that can be differentiated.
Number of Sellers This market has a single seller. This market has a large number of sellers.
Number of Product There are no close substitutes in this market. This market has closely related but differentiated products.
Entry and Exit of Firms There is a restriction on the entry of new firms and exit of old firms. There is freedom of entry and exit in this market.
Demand Curve This market is less elastic and has a downward-sloping demand curve. This market is more elastic but has a downward-sloping demand curve.
Price As the firms in this market are price-maker, there is a possibility of price discrimination. The firms have partial control over the price because of product differentiation. 
Selling Costs In this market, only informative selling costs are incurred. In this market, high selling costs are incurred.
Level of Knowledge There is imperfect knowledge of the market. There is imperfect knowledge of the market.

Last Updated : 01 Mar, 2024
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