Why is perfect competition normally regarded as being "better"than monoply?

Perfect competition takes some assumptions into account, which will be described in the

following lines. However, it is important to note that it refers to a theoretical preposition and not

a reasonable, provable market configuration. Reality might approach it a few times, but only

scratching the shell.

As an Economics undergraduate, the closest I see from a perfectly competitive market in many

economies is agriculture.

A perfectly competitive market has 4 important elements:

1) Homogenuous product

2) Great number of intervenients

3) Perfect information

4) Free entry and exit

1. Homogenuous product refers to a non-differentiated product, which will commonly (but

not always) mean a commodity: how can you differentiate beans, rice, potatoes (in the farms, of

course)? You just can't.

2. There are so many suppliers and demanders in that market that one single agent - be it

buyer (demander) or seller (supplier) - will not affect the market significantly, be in terms of

pushing or restraining price or quantity.

3. All agents - buyers and sellers - have all the information about the product and the

market, so no one is actually in advantage at any possible aspect when negotiating (this usually

can be translated as 'every agent can be replaced easily').

oligopolies present barriers. And why is that? That is because monopolies and oligopolies do

have economies of scale (besides other elements), which make it difficult or impossible for any

firm to join their markets; as, in our case, no agent detains any market power, it is perfectly

correct to assume there are no barriers for entry / exit.

Perfect competition is a market structure in which there are numerous sellers in the market,

selling similar goods that are produced/manufactured using a standard method and each firm has

all information regarding the market and price, which is known as a perfectly competitive

market.  Monopolistic competition is a type of imperfect market structure. In a monopolistic

competition structure, a number of sellers sell similar products but not identical products.

Products or services offered by sellers are substitutes of each other with certain differences. A

market can be described as a place where buyers and sellers meet, directly or through a dealer for

transactions.

Following the flowchart shows market structure –

 The entry and exit to such a market are free.

 This is a theoretical situation of the market, where the competition is at its peak.

 The firms don’t have price control, so they don’t have a pricing policy. The buyer or

seller doesn’t have control over prices. Therefore, a seller has to accept price determined

by market supply and demand forces.

 The product offered by all sellers is the same in all respect so no firm can increase its

price and if a firm tries to increase the price then it will lose its all demand to the

competitors.

What is a Monopolistic Competition?

 Monopolistic competition has features of both the market structures perfect competition

and monopoly. This kind of market structure is found in real life.

 Firms are selling products with certain differences in quality, quantity, etc features, so

firms have pricing control and pricing policies of firms that are in place.

 Entry and exit into the industry are easy because of fewer barriers.

 Product differentiation is one of the features of monopolistic competition, where products

are differentiated from each other on the basis of quality or brand.

 One of the differentiating parameters of the monopolistic competition is, it has a Highly

elastic demand curve.

Just a few examples of monopolistic competition include:

 Coffee shops

 Grocery stores

 Pharmacies

 Gas stations

 Hotels

 Hardware/home improvement stores

 Furniture stores

 Landscaping/lawn care services

 Car washes

 Automotive service companies

 Dry cleaners

Monopolistic competition is a practical example of a market scenario, it can be seen around us.

Types of product or services provided by each market participants are differentiated. Products or

services can be differentiated in many ways such as brand recognition, product quality, value

addition to products or services or product placing etc. Head to Head ct

Below is the topmost Comparison between Perfect Competition vs

Monopolistic Competition are as follows –

between Perfect Competition

Competition vs

Monopolistic

Competition

Number of seller/buyers Many Many

Type of good/services Homogeneous Differentiated

offered

Does firm have pricing No – Price Takers Yes – some pricing power

control over their own

prices?

Is marketing/branding No Yes – Key non-price

important? competition

Are entry barriers zero, Zero entry Barrier Low entry Barrier

low or high?

Does this market Yes, Price = MC Not Quite (P>MC)

structure lead to

allocated efficiency in

the long run?

Does this market Yes No

productive efficiency in

the long run?

Situation Unrealistic Realistic

Demand curve slope Horizontal, perfectly Downward sloping,

elastic relatively elastic

A relation between Average Revenue = Average Revenue >

Average Revenue (AR) Marginal Revenue Marginal Revenue.

and Marginal Revenue

(MR)

CONCLUSION:

It is better for the consumers because they will have access to more quantities of the good for a

lower price.The price in perfect competition is always lower than the price in the monopoly and

any company will maximize its economic profit (π) when Marginal Revenue(MR) = Marginal

Cost (MC).