 Difference Between Monopoly vs

Perfect Competition

Under a Monopoly market structure; there is one seller of the product in lieu
of various buyers hence the seller has the full influence to set the price.
Therefore, under the monopoly market structure, the seller is a price maker
and not a price taker. Also, there are high barriers to entry and exit the market
as a result not many sellers are able to enter the market. Under the Perfect
Competition market structure, there are large numbers of buyers and sellers in
the market and each firm is taking the same price of the product from the
buyers. Under this market structure, each firm is a price taker and not a price
maker because there are low barriers to entry and exit in the market. Under
perfect competition, all sellers of the product sell identical products.

A market is a platform where various buyers and sellers of a commodity meet,

interact, and strike a deal on a mutually agreed price. There are different kinds
and nature of markets that are explained in economics. The various factors
which determine what kind of market and the nature of the market are the
numbers of buyers and sellers in the market, Entry, and exit of the market, the
power to influence the price in the market, the intensity of competition.

Key Differences between Monopoly vs.

Perfect Competition
Both Monopoly vs. Perfect Competition are popular choices in the market; let

us discuss some of the major differences:

 The key difference between Monopoly vs. Perfect Competition is that in

the short-run under perfect competition the seller will always end up

earning normal profit due to the reason that if there will be abnormal

profits due to low barriers for entry and exit. Monopoly market structure

the seller can end up earning abnormal profits in the short run as the

seller is a price-maker and not a price taker

 Under perfect competition, each seller is selling an identical product in

the market and there is no product differentiation in perfect

competition. On the contrary, monopoly since there is only one seller of

the product there is a possibility of price discrimination by the seller in

the market, for example, he can sell electricity to some district at a much

cheaper price to a district where he can charge the premium on the

electricity supplied by the seller

 Under a perfect competition market, there is intense competition among

the sellers and any decrease in the price of the product will be

immediately matched by the other sellers in the market, in order to

avoid this the sellers, form a cartel in the market and charge the same

price. On the other hand, under a monopoly market structure the seller
 can charge the price for the product sold by him at his will. Usually, in a

market structure of monopoly, the government keeps a check on the

price sold by the seller in order to avoid price discrimination

 The price set by the monopoly is generally controlled or monitored by

the government to protect the interest of the customers, for example,

electricity is an example of a monopoly market where it is only one

producer of the goods. On the other hand, in perfect competition, there

is no such price regulation as each seller is charging the same price for

the product sold

 Monopoly vs. Perfect Competition

Comparison Table
Below is the 6 topmost comparisons between Monopoly vs. Perfect

Competition

Monopoly Perfect Competition

Price Market Price Taker

Can earn abnormal profits in the short-run Cannot earn abnormal profits in the short
 period run period

The existence of Price Discrimination Price Discrimination is not present

The non-existence of seller cartel Seller cartel is present

Can play with the quality of the product sold In perfect competition, each seller is sellin

in the market to the buyers identical products in the market

The demand curve of monopoly is downward The demand curve of perfect competition

sloping perfectly elastic

 What is price discrimination in a monopoly?

Price discrimination in a monopoly is a practice of charging different prices for the same
product. Monopolies usually have more control over suppliers than regular sellers,
which means they can significantly influence the suppliers' selling prices. Monopolists
can also set higher prices to increase profit when the supply is low. They require
suppliers to cooperate with them to help manage costs and increase gains. For
example, when companies purchase intermediate or raw materials from suppliers in
different markets, it can lower prices for consumers.

Price discrimination may also allow businesses to earn higher profits

at the expense of some consumers. Setting low prices ideal for target
customers can make other consumers pay more than they might for
the same goods and services under perfect competition. Monopolists
use this strategy to sell the same products at different prices to
different consumers. This may increase a monopolist's market power
because it can help the firm profit more than its competitors, setting
uniform prices for a product or service.

Benefits of price discrimination in monopoly

Here are some ways price discrimination can benefit monopolies:

Increases profit

Price discrimination typically helps increase the monopoly firm's profit by maximizing its
total revenue. A monopolist charges some customers higher prices rather than a
uniform fee for all buyers. Price discrimination among customers with inconsistent
demands can minimize the risk of setting up a uniformly high price. A high price may
mean that only a few customers can afford a product or service. Monopoly firms can
charge higher fees to infrequent customers to increase the total revenue.

Increases customer satisfaction

Customers usually associate a higher price with an excellent customer experience.

Price discrimination may increase buyers' loyalty because the firm can charge different
prices for each of them, giving a few premium experiences. It can also encourage
customers to shift towards a monopoly product or service over alternative products
because they get more satisfaction.

Concentrates on core market segments

Price discrimination encourages monopolists to focus on marketing their products and

services towards specific groups of people. It is usually more efficient than working to
fulfil everyone's expectations in the market. Price discrimination is a strategy firms can
use to improve their total revenue, profit, and productivity. It often leads to market
segmentation, minimizes competition, and increases profit.

Increases investments

Price discrimination encourages monopolists to make more investments, like new

marketing efforts, to reach their target market. Investment projects can generate more
revenue and increase a monopoly's profits. For example, a monopoly can invest in its
supply chain logistics to ensure sufficient and timely supply to meet customers'
demands.
Empowers consumers

Price discrimination can empower consumers because they may have the freedom to
choose what they pay for products. It allows consumers to determine their priorities of
price, quality, and other aspects of choice. A monopolist can control the price of its
product or service and manage the consumer's demand. For example, they can
increase the demand by increasing or lowering the price depending on the situation.

Controls demand

Monopolies also use price discrimination to manage the demand for a product or
service. For example, transport services such as taxis can be more expensive during
the rush hours to manage demand. They can also offer incentives to encourage
customers to travel at different times. For example, they can set lower prices before and
after rush hours.

Types of price discrimination

Price discrimination can vary depending on different markets. The main types of price
discrimination include:

First-degree price discrimination

First-degree price discrimination usually refers to charging the clients the maximum
price they can pay for a product or service. It usually covers all individual variations in
demand and supply. The effectiveness of first-degree price discrimination can depend
on whether the company can accurately determine the maximum price customers are
willing to pay. It may be easy to implement in industries where the transactions with the
customer are private, such as aviation and hospitality.

Second-degree price discrimination

In second-degree price discrimination, monopolists can charge different prices for their
products and services. It is more common in the retail industry, such as buying items in
bulk at a discount. Second-degree price discrimination helps monopolies reach a larger
part of the market. It may also increase customer loyalty. An example of second-degree
price discrimination is when airlines lower the prices for frequent travellers. The price
may vary according to the time of purchase.

Third-degree price discrimination

Third-degree price discrimination may refer to a monopoly subdividing an entire market

into consumer groups. The submarket groups can vary by age, location, and gender.
Monopolists using third-degree price discrimination focus on the choice of the entire
group rather than the choice of individual consumers. They charge each submarket
differently for a product or service. An example of third-degree price discrimination is
lower ticket prices for students than other adults.

What is a Monopolistic Competition?

Monopolistic competition definition says that it stands for an industry in which
many firms’ service similar products which are not a perfect substitute. There are
very low barriers to entry or exit in monopolistic competition. In this competition,
one firm decision doesn't affect the whole industry or another firm. Monopolistic
competition is just related to the business strategy of brand variation.

Monopolistic Competition Meaning

Monopolistic competition means monopoly plus a perfect competition. This
market is a perfect mixture of monopoly and perfect competition. This industry is
one of the best classical monopolistic competition examples.

Understanding of Monopolistic Competition

Monopolistic competition is half monopoly half and perfect competition. It
combines elements of both in a theoretical state. In this competition, every brand
tries to make its own unique product, and they make it slightly different from other
brands of the same item. While we are judging them roughly, there is no
difference as such. Although when we examine them closely, we can find some
little difference between different brand products.

If we take the soap brands of India as monopolistic competition examples, it can

be easily revealed the idea of monopolistic competition. Though all the soap
brands such as Lux, Dove, Vivel, Fiama, Pears produce the same item, They
contain some different features from others in their product to make it unique.
Features of Monopolistic Competition
 A Large Number of Sellers: There are many sellers involved in the
market of monopolistic competition. They also own some small shares of
that market.
 Entry-Exit Freedom: Any firm can enter or exit in this industry for
monopolistic competition. They are free to get involved in this or they can
also get out of this as per their wish. It is not necessary to explain the
reasons behind it.
 Product Variation: Every brand involved in this industry tries to produce
item variation to add monopoly. They make some small differences so that
their product can be unique. All the products are somewhere different from
others. Therefore, the brand can fix the price of the product as per their
 choice. It also creates a problem for all the brands as they tend to lose
some customers.
 Non-Price Factors: Besides the price competition, there are some other
factors to compete in the market. The brands attract customers through
advertising, product development, extra features, great service, etc. All the
brands promote and take the initiative to make their product better than
other available products in the market.

Equilibrium for Monopolistic Competition

There are two types of equilibrium in this competition that define monopolistic
competition as imperfect competition i.e. short-run equilibrium and long-run
equilibrium.

Short-run equilibrium increases profit and makes marginal revenue (MR) and
marginal cost (MC) equal. Long-run equilibrium makes changes in marginal and
average revenue (MR & AR) in the entrance of other brands. The firm never
sells products above average cost and doesn't claim economic profit in long-run
equilibrium.

In the monopolistic market, you can see many monopolistic competition

examples following all the classic rules of this industry. Some common examples
are soap brands, toothpaste brands, electronics, furniture, smartphone,
stationeries, etc. All these brands make their products considering all these
competitive factors and ensure the uniqueness of their product.
Features of Monopolistic Competition
 Under Monopolistic Competition, a buyer can only buy a specific type of
product from a single manufacturer. In other words, product differentiation
exists.
 Because there is product differentiation, businesses must incur sales
expenses.
 There are a lot of sellers, and their demand and supply are all intertwined.
Sellers set prices, and the demand curve for a single seller's goods is
downward sloping. Demand isn't completely elastic.
 The company can also increase or degrade the quality of its products.
Improving the product's quality helps to increase demand and pricing. On
the other hand, lowering the quality helps lower the average production
cost.
 Inputs are also a source of competition for businesses. They must also
work within a certain technological range. As a result, no company can
provide a higher-quality product at a lower average price.
 Firms should be aware of their demand and cost conditions. They must
also apply this knowledge in order to optimize the predicted profit income.
  A company can quit a product group's group of companies at any time.
New enterprises can also join the group and produce close alternatives for
the company's existing items. This assures that no company loses money
or makes excessive profits.
 Every enterprise in Monopolistic Competition must strive for profit
maximisation.
 All enterprises in this market structure are believed to have the same cost
and demand circumstances.
An Oligopoly Market is a system of Markets where there are more than one
Vendor (or firm) for trading of a particular good but there are very few Vendors.
This is imperfect competition as the decision of one Vendor affects the decision
of others in the Market, although the competition is very limited. The main
characteristics of this type of Market is the interdependence of the Vendors that
urge them to collaborate and compete with each other to control the Market,
affecting the demand and supply based on the prices.

Characteristics:
As mentioned above, the main characteristic feature of this type of Market is
interdependence of the firms. The other defining features of the Market are:
 Group behaviour: To maintain the Market system, all the firms have to
work together.
 Restriction on entry: Entry in a tight knit Oligopoly Market is strictly
restricted, new firms trying to grow up or existing Vendors trying to expand
have to face serious competition.
 Emphasis on Advertisement: To get a bigger hold of the Market, each
Vendor tries to reach out more through advertisements.

Types of Oligopoly Market

Oligopoly Markets can be classified differently based on different factors affecting
the Market such as nature of the product, openness of the Market, degree of
collaboration between Vendors, functioning and structure of the Market, etc.

Nature of the Market:

1. Pure Oligopoly: The product in this type of Market is Homogenous, for
example, the Aluminium Industry.
2. Differentiated Oligopoly: The products are differentiated in this type of
Oligopoly Market, for example, the Talcum Powder Industry.
Openness of the Market:
1. Open Market: Here, any new firm trying to enter the Oligopoly Market can
compete with the existing firms to establish a hold.
2. Closed Market: Entry is strictly restricted to new firms.

Collaboration between existing Vendors in the Market:

1. Collusive: The firms collaborate with each other and control the product
output and Market price for the product.
2. Competitive: In this type of Oligopoly, the Vendors do not co-operate with
each other and compete instead.

Functioning of firms:
1. Partial: When a firm takes a big hold of the Market and starts controlling
the prices, the other Vendors have to comply accordingly. This is a case of
partial Oligopoly Market.
2. Full: When there is no price controlling Vendor and every Vendor works
more or less the same way, it is full Oligopoly Market type.

Fixing of products price:

1. Syndicated Oligopoly: When only a very small group or an individual firm
controls the sale of products, it is a case of Syndicated Oligopoly.
2. Organised Oligopoly: When all the firms work together to fix output, sale,
prices, etcThe Market is called Organised Oligopoly Market.
Interestingly, the Oligopoly Market demand is marked by kinked demand curves.
Therefore, oligopolists maximize profits by balancing marginal revenue with the
marginal cost of the concerned product.

Game Theory
Game Theory is primarily a mathematical framework but has found
applications in many fields ranging from social sciences to the
biological sciences. This theory analyzes the decision-making of a
player based on how they expect other players to make a decision. In
other words, we can say that it helps in determining optimal rational
choices given a set of circumstances.
ypes of Game Theory
The two most common types of game theories are cooperative game
theory and non-cooperative game theory. The collaborative game
theory talks about how groups or coalitions interact or behave when
the payoffs are known. The game theory helps explain how (or the
reason for) groups are created and how they distribute the payoff
among the members within the group. In this, players benefit the
maximum by cooperating. Moreover, players have nothing to gain by
cheating. Cheating will result in the worst outcome. For example,
driving on the right side of the road is suitable for all drivers.

Non-cooperative game theory talks about how individuals will interact

with each other to achieve their objectives. This theory includes games
where the available strategies and outcomes are listed. A simple
example of this theory is the game Rock-Paper-Scissors. The above
example of the Prisoners’ Dilemma is also an example of non-
cooperative game theory.

Nash Equilibrium
As per mathematician John Nash, this is an outcome or equilibrium
where no player can raise the payoff by altering the decision
independently. This equilibrium holds in the non-cooperative games.

The movie ‘A Beautiful Mind’ is only based on Nash’s life. As per the
film, the mathematician got the idea of the theory by observing all his
friends try to hit on the most beautiful girl. Seeing this, he decided to
hit on the second or the third most beautiful woman to improve his
chances.

Importance of Game Theory

As said above, game theory has practical applications in several fields.
Thus, it helps with:
  Economists use this theory to analyze the actions of oligopoly
firms, such as OPEC. It allows analysts and economists to
understand the firms’ decisions regarding setting the prices,
collaboration, price wars, and more. Moreover, the theory will
enable economists to predict the outcomes.
 Help businesses make strategic choices, such as whether or not
to retire existing products, lower the price of an existing product,
launch a new product, use new marketing strategies, and more.
 It helps explain market equilibrium in a scenario when there are
two or more firms.
Limitations
Following are the limitations of the game theory:

 Like most theories, the biggest drawback of the game theory is

that it depends on assumptions. The approach uses assumptions,
like people behave rationally in self-interest, and more. In many
scenarios, these assumptions may not hold.
 This game theory may encounter various situations where you
may not get the answer you need, even with rationality or
diplomacy.  For instance, there could be a situation when the
mutual benefit is not an ideal outcome.
 There are always chances or some aspects of uncertainty that
favor one user over another. This uncertainty contradicts the
concept of game theory.