What Is the Difference Between Perfect Competition and Monopoly Competition?


According to Boundless, the key difference between perfectly competitive and monopolistic markets is that perfectly competitive markets do not have any barriers to entry or exit, while monopolistically competitive markets have several barriers to exit and entry. Whereas all the goods in a perfectly competitive market are substitutes, there is widespread product differentiation within a monopolistically competitive market. The two markets have similarities over the long run.

Boundless emphasizes that a crucial difference in efficiency exists within the two markets. A perfectly competitive market is perfectly efficient, which means that a shift in price immediately benefits one party at the expense of the other. There is also a maximization of both the producer and consumer surplus within a perfectly competitive market; the market, rather than the supplier, dictates the price. In a perfectly competitive market, the price of the good is equal to the marginal cost of manufacturing the same item. In a monopolistically competitive market, the price of the good or service is usually higher than the marginal cost of producing the good, and the suppliers' ability to influence the price gives them market power. Boundless notes that this decreases the consumer surplus and, by default, the market's economic surplus, thereby creating deadweight loss.