Difference between Perfect Competition and Monopolistic Competition

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). 

What is Perfect Competition?

A market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market is known as Perfect Competition. Homogeneous goods are goods of similar shape, size, quality, etc. In other words, in a perfectly competitive market, the sellers sell homogeneous products at a fixed price determined by the industry and not by a single firm. In the real world, the situation of perfect competition does not exist; however, the closest example of a perfect competition market is agricultural goods sold by farmers. Goods like wheat, sugarcane, etc., are homogeneous in nature and their price is influenced by the 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 Perfect Competition and Monopolistic Competition

Basis	Perfect Competition	Monopolistic Competition
Meaning	It is a market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market.	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 very large number of sellers.	This market has a large number of sellers.
Number of Product	This market has homogeneous products.	This market has closely related but differentiated products.
Entry and Exit of Firms	There is freedom of entry and exit in this market.	There is freedom of entry and exit in this market.
Demand Curve	This market has a perfectly elastic demand curve.	This market is more elastic but has a downward-sloping demand curve.
Price	As each of the firms in this market is a price-taker, the price is uniform.	The firms have partial control over the price because of product differentiation.
Selling Costs	In this market, no selling costs are incurred.	In this market, high selling costs are incurred.
Level of Knowledge	There is perfect knowledge of market.	There is imperfect knowledge of market.