• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Differences between monopoly and monopolistic market competition.

Extracts from this document...

Introduction

DIFFERENCES BETWEEN MONOPOLISTIC COMPETITON AND MONOPOLY MARKET STRUCTURE Monopolistic competition and monopoly are two market structures existing on rather two extremities of the market structure analysis. In this essay I will give their definitions, discussing their characteristics, giving their differences and concluding with an overview of what I have been able to achieve. Amos WEB (2000-2010) defines Monopolistic competition as a market structure in which a large number of firms manufacture and produce not necessarily the same product but similar products but still maintain a substantial amount of profit. For example, the manufacturing of pens, firms manufacturing these can be said to exist in a monopolistic competition market where four or more firms manufacture the same product or similar products in this case pens. There is freedom of entry and exit and extensive knowledge of prices and technology. The diagram above represents monopoly competition. It has four characteristics, which are: 1. Large number of small firms: This market contains large numbers of comparatively small firms when compared to the size of the market. This gives for high rate of competition and little control over price or quantity. ...read more.

Middle

2. Restrictions of entry into and exit out of this industry: entry and exit into and out of this market is restricted by either legal or natural causes. 3. One unique product: the product being produced is unique and has no close substitutes or competition. 4. Information is not easily accessible: this is not available to other prospective producers as product is unique and there are barriers to entry and exit. This two market systems are very different and there differences are: 1. There exists only one producer of a unique product in monopoly while in monopolistic competition there can be hundreds of producers producing the same or closely similar products or services. In monopoly one particular firm makes 100% of the markets profit while profit has to be shared among many firms in monopolistic competition. 2. In the short run, firms in a monopolistic competition market can behave like monopolized firms, but in the long run other firms are introduced into the market and it becomes similar to perfect competition but does not shut down or loose profit completely as it maintains spare capacity. ...read more.

Conclusion

7. In the short run, firms in monopolistic market can make excess profit but this reduces as the excess profit attracts other firms and is finally reduced to its barest minimum. While a monopoly firm can preserve excess profit for a long time as barriers to entry prevent other firms from entering into the industry. The diagram above represents monopolistic competition in the short run and long run. 8. A monopoly firm would have a relatively inelastic demand curve, while a monopolistic competition firm would have a perfectly elastic demand curve. 9. In monopoly there is no pricing pressure from other competitive firms unlike the monopolistic competition that faces pricing pressure due to the numerous numbers of firms in this market structure. Pricing pressure is if the price of a good should affect another negatively or positively. In conclusion, there exist a lot of differences between monopolistic competition and monopoly, although this firms have similarities, their differences are said to outweigh them. In this essay I have discussed and defined the meanings of monopoly and monopolistic competition and diagrams that help us understand this market structures, given its characteristics and also its differences. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. "Discuss and evaluate the proposition that perfect competition is a more efficient market structure ...

    First of all there is almost always some kind of substitute for any given product. Second a sole supplier may not be a pure monopolist firm if it fears the entry of other firms and so acts cautiously to prevent attracting potential rivals.

  2. Free essay

    Pay differences between men and women

    paid a higher rate in such positions than the market rate and thus their overall pay increases closer to the average male pay.

  1. Outline the economic argument against monopoly. Is there anything which can be said in ...

    create a better alternative to it's product or a new technology to make it's monopoly power even bigger. This process exploits new inventions and also earns abnormal profits. In turn, this discourages other inventors and other smaller companies from using R+D.

  2. Monopoly. The following is going to discuss that monopoly is always against the ...

    However there are some consumer benefits lost altogether and shown by the green shaded area EBF. This is known as the deadweight welfare loss. P=MC and deadweight loss demonstrate the allocative inefficiency of monopoly. In addition, the monopolist does not produce where the AC curve is minimised; it is represented by point G.

  1. In this essay, I would like to take a view at the implications for ...

    On the other hand, the economic welfare represents the allocative efficiency and productive efficiency. When the value consumers place on a good or service equals the cost of the resources used up in production, which means the price equals the marginal cost, allocative efficiency is achieved and the economic welfare is maximized.

  2. Evaluate the role played by barriers to entry in the long run

    Perfect competition - A market that has perfect competition, describes a market where no businesses are large enough to gain market power. Here there are zero/low barriers to entry or exit meaning practically anyone can set up a business and begin trading receiving the same, or similar returns to previous competitors regardless of their time in the market.

  1. What is a Monopoly?

    This results in one company taking over all the stages of production. Creation of a Statutory Monopoly When a policy of nationalisation was being pursued, key industries were taken over into state ownership and run as public corporations with monopoly status.

  2. In this essay, I will analyze and compare the two extremes of market structure ...

    This ensures that no buyer has any economic incentive to pay any firm higher price for the product than is charged by other firms because buyers will compare the prices and find out which firm would charging them less for an identical product.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work