On the other hand, monopolistic market is defined by Yogesh Ambekar (2000-2009 at buzzle.com) as a situation whereby one firm produces a particular service generally without any close substitutes or similar products, and the firm makes maximum profit in an industry. An example of this is the Microsoft Company owned by Mr. Bill Gates, in this case he has taken advantage of this market completely.
The diagram above represents the monopolistic competition market.
It’s characteristics are in direct contrast with that of monopolistic competition, they are:
-
Single firm possessing sole ownership of a product: there is only one existing firm selling only one product with no substitutes.
-
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.
-
One unique product: the product being produced is unique and has no close substitutes or competition.
-
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:
- 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.
- 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.
- Firms in monopoly posses market power, i.e. the ability to increase price of the product without loosing buyers to another supplier or producer of the same product. This is because firms in monopolized market are the main suppliers or producers of such goods or services and there are no close substitutes for such products therefore leaving consumers with no choice, but in a monopolistic market, market power is not possessed by any firm as this will make them loose profit and buyers to a producer of the similar product.
- In monopolistic competition there is little or no product differentiation and products are almost homogenous, but in monopoly product differentiation is very high due to the fact that there is no available substitute for product being produced.
- The numbers of buyers and sellers differ greatly in that monopoly has only one seller of a product while monopolistic competition has more than four buyers and sellers.
- In monopolistic competition market there are little or no barriers to entry. Barriers to entry are laws or restrictions put in place either legally or naturally to avoid competition from other firms. In monopoly barriers to entry are greatly present in order for a firm being the main producer of a product to continue that way.
- 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.
- A monopoly firm would have a relatively inelastic demand curve, while a monopolistic competition firm would have a perfectly elastic demand curve.
- 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.
REFERENCES
Amos WEB (2000-2010) Monopolistic competition. Retrieved 5th of may 2010 at
Amos WEB (200-2010) Monopoly. Retrieved 5th of May 2010 at
Yogesh Ambekar (2009) what does market monopoly mean? Retrieved 5th of May 2010 at
Wikipedia (2009-2010) Monopoly and monopolistic market. Retrieved 5th of May 2010 at