Perfect Competition Market Versus Monopolistic And Oligopolistic Competition

  • Words 1684
  • Pages 4
Download PDF

Different types of Markets


There are many diverse market structures that can describe an economy. In any case, on the off chance that you are simply beginning with this them, you may want to look at the four basic types of market structures first: perfect competition, monopolistic competition, oligopoly, and monopoly. Every one of them has its own set of characteristics and assumptions, which thusly influence the decision making of firms and the benefit they can make.

It is critical to take note of that, not these market structures exist truly; some of them are simply hypothetical builds. In any case, they are important since they assist us with seeing how competing firms make decisions. All things considered, how about we take a look at the four market structures in more detail.

Click to get a unique essay

Our writers can write you a new plagiarism-free essay on any topic

Types of the market in detail

In economics, the concept of a market means that any structure allows buyers and sellers to buy and sell or exchange any type of goods, services and information. The value, cost and price of items traded are as per forces of supply and demand in a market.

Here I’m going to discuss the four different types of the market by giving my opinion, and Pros and Cons in each case.

Perfect competition Market

The Perfect Competition is a market shape where countless purchasers and vendors are available, and all are occupied with the purchasing and selling of the homogeneous items at a solitary cost winning in the market.

Perfect competition markets are highly competitive markets in which many sellers are competing to sell their products. Each seller produces a product that has no unique characteristics so buyers “don’t care” about which seller’s product to buy.

Large number of buyers and sellers

The is that there may be a large range of consumers and dealers inside the market, in any such situation each person purchaser and vendor address a completely small quantity in the market.

Each customer buys so little and each dealer sells so little that none of them is in a position to steer the market.

In other words, we can say that in the Perfect Competition there must be large wide variety of organisations inside the enterprise. The output of an individual firm is very small of the total output of the industry therefore an individual firm has no command over the price. But an individual enterprise has to accept the price. Which is determined in the market by the forces of total supply and total demand.

Existence of homogeneous product

The second critical function of perfect competition is that the product being sold through the numerous dealers need to be homogeneous or identical in eye of buyers. The product are homogeneous in the sense that they are perfectly alternate from the buyers point of view. This ensures that no firm can rate a price even barely above the ruling market price. Because if it does so, the firm will lose all his customers.

Perfect Knowledge about Market

The important condition of perfect competition is the existence of perfect knowledge on the part of buyers and sellers. Since we assume that the buyers have perfect knowledge about the market conditions there is no need to do any expenditure on publicity and advertisement. In this way sellers also possess perfect information especially regarding the market price. quality of product, number of competitors, substitutes etc.

Free entry and exit

There is the free entry of new firms into the market. There is no legal-technical, finance or any other barrier to their entry. Similarly, existing firms are free to leave the market. Thus the mobility of firms ensures that whenever there is scope in the business new firms will enter and competition will be always stuff.

When above all conditions are together satisfied in the market, we can say there is a Perfect Competition. But according to Prof.Joel Dean it is a myth of classical economists. It has never existed and it can never exist.


Monopoly suggests the power to sell alone, in other words when there’s just one single seller of a product within the market, that situation are going to be mentioned as a monopoly. however, this can be only a literal meaning of the term Monopoly.

Types of Monopoly actually the term Monopoly in economics is connecteed with the degree of competition prevailing within the market. on the premise of the degree of competition, we are able to classify Monopoly into two varieties. they’re as below.

Pure or perfect or absolute Monopoly

If in a market there’s one single seller of a product and there is no competition at all. the situation are going to be referred to as pure-perfect or absolute Monopoly.

In technical language we have a tendency to may define pure Monopoly as a single firm industry. where the cross elasticity of demand between the merchandise of the firm which of the alternative commodity within the market is zero.

Limited, imperfect or relative Monopoly

Limited Monopoly is very much realistic market situation-limited monopoly might define as a market situation within which there’s one seller of the product that there aren’t any close substitutes. In different words, the substitute of the product is available within the market however they’re not close substitute. during this method under imperfect monopoly, far substitutes are on the market and thus} the monopolist isn’t so powerful as the pure monopolist.

In technical language, we might define imperfect monopoly as one firm industry. wherever the cross elasticity of demand between the product of the firm which of another commodity within the market is little or higher than zero.

Characteristics or Conditions of Monopoly

  • In monopoly, there should be just one seller within the market.
  • Monopolist has full management over the supply as a result of he’s alone in the market.
  • In a monopoly market the monopoly firm itself is the industry-therefore monopoly understand as single firm industry.
  • In a monopoly, firm is in a position to work out the price in this way monopolist is price maker.
  • The demand curve of a monopoly firm is comparatively inelastic. it’s a downward slopping curve.
  • In a monopoly, firm is in a position to earn abnormal profit.
  • In monopoly the unity of product is homogeneous.
  • According to Professor Joel dean product under monopoly is lasting distinctiveness. Its distinctiveness lasts for many years-pure monopolies is a myth however imperfect monopoly is pretty much realistic.

Monopolistic Competition

The term monopolistic competition is usually used as synonym of imperfect competition. This but is wrong because there does exist a distinction between two terms.

According to the classical economist, “there are only two types of market in market structure. perfect competition, Monopoly however in actual life it’s virtually not possible to discover a single commodity which is sold under perfect competition and it is equally tough to discover example of pure Monopoly.”

It becomes proof that imperfect competition and monopolistic competition don’t seem to be interchangeable terms. Imperfect Competition is a lot of wider and more comprehensive term than monopolistic competition. In fact monopolistic Competition is just one amongst the numerous sub-categories of imperfect Competition.

Characteristics of monopolistic Competition

Existence of many ferms

We have seen that under perfect Competition there’s a large number of firms operating in the industry. and we have additionally seen that under monopoly there’s just one firm. whereas under monopolistic Competition there are several firms operating within the business. each of them manufacturing differentiated product that are comparatively close substitute for each other, under monopolistic Competition there doesn’t exist just one firm as in Monopoly at the identical time the amount of firm isn’t, therefore, giant as under perfect Competition here the number of firm is fairly large and thus the size of each firm under monopolistic Competition is little. As result, an individual firm has a relatively little part of the total output. so any action on its part to increase or decrease the output and price will have very little or no impact on the rival companies.

Product differentiation

The second vital Characteristic of monopolistic Competition is product differentiation this means that the various firms under monopolistic competition manufacture not homogeneous or identical products but the differentiated product that are closely related to one another. according to the professor. Stonier and Hague product differentiation means that the products are different in some way but not altogether, therefore.

Control over the price

We know that under perfect Competition an individual firm has no control over the price. because it’s one amongst the very several firms within the business. however, under monopolistic Competition, this is not so because of the product differentiation. every firm has a partially independent market. and therefore it has some management over the price.


As indicated by the professor. George Stigler “Oligopoly is that market situation in which a firm formulates its market policy in part on the expected behaviour of few close rivals.”

Oligopoly could be a real-world market situation. Even in India, we discover that only a few firms are dominant the whole market in certain commodities. The Motor automobile business in India is an example of an oligopoly.

Characteristics of oligopoly

  • Few corporations are operating within the business. the number of corporations should be between 3 to twenty in an oligopoly market.
  • The sellers supply either homogeneous products or differentiated products.
  • The firm features a high degree of interdependence in their business policy about fixing of prices and determination of output.
  • The product under oligopoly contains high degree of cross elasticity of demand.
  • Advertising and selling costs have strategic importance in an oligopoly market.
  • In economics, oligopoly is known as cat mouse competition.


The perfect completion has infinite buyer and sellers, meanwhile monopoly has one producer, opposite to oligopoly which has many producers, and monopolistic competition has a lot of competitors, An example of monopolistic competition is the market for cars. While there are many cars models, each car is different and is’t perfectly substitutable with another car.


  1. Vickers, J.S. (1986). The evolution of market structure when there is a sequence of innovations. Journal of Industrial Economics,
  2. Aghion, P.and, Blundell, R., Griffith, R., and Howitt, P. (2005). Competition and innovation: An inverted -U relationship. The Quarterly Journal of Economics.
  3. Bartolini, D. (2008). Investment and merging strategies. Miscellaneous publication, mimeo.
  4. Horn, H., and Persson, L. (2001). Endogenous mergers in concentrated markets. International Journal of Industrial Organization.
  5. Moltó, M.J.G., Georgantzís, N., and Orts, V. (2005). Cooperative R&D with endogenous technology differentiation. Journal of Economics & Management Strategy.


We use cookies to give you the best experience possible. By continuing we’ll assume you board with our cookie policy.