The number and types of firms operating in an industry and the nature and degree of competition in the market for the goods and services is known as Market Structure. To study and analyze the nature of different forms of market and issues faced by them while buying and selling goods and services, economists have classified the market in different ways. The different forms of market structure are Perfect Competition and Imperfect Competition (Monopoly, Monopolistic Competition, and Oligopoly).
What is Perfect Competition?
A market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market is known as Perfect Competition. Homogeneous goods are goods of similar shape, size, quality, etc. In other words, in a perfectly competitive market, the sellers sell homogeneous products at a fixed price determined by the industry and not by a single firm. In the real world, the situation of perfect competition does not exist; however, the closest example of a perfect competition market is agricultural goods sold by farmers. Goods like wheat, sugarcane, etc., are homogeneous in nature and their price is influenced by the market.
What is Monopoly?
Monopoly is a completely opposite form of market and is derived from two Greek words, Monos (meaning single) and Polus (meaning seller). A market situation where there is only one seller in the market selling a product with no close substitutes is known as Monopoly. For example, Indian Railways. In a monopoly market, there are various restrictions on the entry of new firms and exit of existing firms. Also, there are chances of Price Discrimination in a Monopoly market.
Difference between Perfect Competition and Monopoly
| Basis | Perfect Competition | Monopoly |
|---|---|---|
| Meaning | It is a market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market. | It is a market situation where there is only one seller in the market selling a product with no close substitutes. |
| Number of Sellers | This market has a very large number of sellers. | This market has a single seller. |
| Number of Product | This market has homogeneous products. | There are no close substitutes in this market. |
| Entry and Exit of Firms | There is freedom of entry and exit in this market. | There is a restriction on the entry of new firms and exit of old firms. |
| Demand Curve | This market has a perfectly elastic demand curve. | This market is less elastic and has a downward-sloping demand curve. |
| Price | As each of the firms in this market is a price-taker, the price is uniform. | As the firms in this market are price-maker, there is a possibility of price discrimination. |
| Selling Costs | In this market, no selling costs are incurred. | In this market, only informative selling costs are incurred. |
| Level of Knowledge | There is perfect knowledge of the market. | There is imperfect knowledge of the market. |
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