Video transcript- [Instructor] In this video, we're going to dig a little bit into the idea of what it means to be a monopoly, and so to help us appreciate that, let's think about the spectrum on which firms can be. So this is going to be my spectrum right over here. Now at the left end, we can imagine this idealized perfect competition, perfect competition, and we've talked about that in the other videos, but just as a review, this is where you have many firms. This is where they are selling an undifferentiated product or service, undifferentiated, undifferentiated product. The firms over here, well, they have no barriers to entry or exit, so no barriers to entry or exit. These firms that we've talked about in other videos, they need to be price takers. Why do they need to be price takers? Well, whatever the market price is, since no one cares which of these firms, which of these many firms they get the product from, none of those firms can really set their own price. If they were to go above the market price, well then no one will buy from them, and so they will just be price, price takers, and other things that we assume about perfect competition is that all of the actors in the market, both the buyers, the many buyers and the many sellers, they all know what the transactions are going on for. They know who's selling to whom for what amount. Now the other extreme, this is where we have the monopoly, monopoly. Here, instead of many firms selling or many firms producing, you have exactly one firm producing. Instead of an undifferentiated product, well, it's differentiated because it's the only firm. Instead of no barriers to entry or exit, here we have the exact opposite, so you could say insurmountable, insurmountable, mountable, I'll just abbreviate it, barriers, especially to enter, and instead of being a price taker, you are a price setter, price setter. You're the only player. You're the only actor who is selling anything, So you can decide what price to sell it at. Now, perfect competition as I talked about, it's a bit of a theoretical idea. It's hard to say any market that is absolutely perfect, but we can imagine markets that are on this spectrum, some closer to perfect competition, some closer to a monopoly. Things that I can imagine that are closer to perfect competition might be, let's say, agriculture or a certain type of agriculture. Let's say you are buying pistachios, and you might be, most people are indifferent as to where their pistachios come from, although some people might beg to differ that certain types of pistachios are better than others, but for the most part, that'd be closer to perfect competition. There will be just a price in the market for pistachios. If someone wants to grow pistachios, I'm not familiar with what it takes to grow pistachios, and I apologize to any offense to any pistachio growers out there, but maybe they can just get enough land, and there's very close to low barriers to entry, and they can start producing pistachios. As I mentioned, many would perceive it as undifferentiated, and there might be many firms in, say, the pistachio market. I actually don't know if that's the case, but let's just assume if that were the case it would be closer to a perfect competition. Now a monopoly, you can imagine things like things that take a lot of infrastructure in order to do that service. So I can imagine things like, over here, close to monopoly or at monopoly. You can imagine things like utilities providers, utilities, where it's hard for multiple people to run power lines to the various houses. You can imagine things like this. Telecom, telecom providers might be close, although in most geographies, you have more than one telecom providers, although in some parts of the world, you're getting pretty close to one because, once again, there's very, very, very high barriers to entry in either one of those. You gotta launch satellites and put cable under the ground and dig up roads and whatever until you get closer and closer to this notion of maybe there's one firm. If you're in a situation like telecom in a lot of the places where you have only a handful of firms, that's known as an oligopoly, but let's just think about the extreme, when you're in a monopoly situation, and so the next few videos, we're gonna dive a little bit deeper into what it means to be a monopoly, and what is the rational quantity for a profit-maximizing monopolistic firm to actually produce, and what would be their economic profit? Show
In a perfect competition market, there are many competitors, barriers to entry are very low, products that are sold are homogenous and identical, absence of non-price competition. However, whereas monopolistic
competition is dominated by a single seller and the competition is zero, barriers to entry are also low, sold products can have substitutes, and non-price competition is also present. You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked Many small firms manufacture and supply the same goods (or perfect substitutes) to the end-user in perfect competition. Small firms mean each firm is too small to influence the product’s market price. MonopolisticMonopolistic refers to an economic term defining a practice where a specific product or service is provided by only one entity. Hence the entity supplying the product or service has the dominance in its price-fixing and deciding on the market output.read more competition is whereby a handful of sellers offer a particular product leading to minimal competition. However, each seller’s variants and quality of products are slightly different. Infographics You are free to use this image on your website, templates, etc, Please provide us with an attribution linkArticle Link to be Hyperlinked Key Differences Between Perfect and Monopolistic Competition
Comparative Table
To understand these competitions better, let us discuss an example. You might have seen different brands of running shoes in the market. What differentiates them from each other is the uniqueness of each shoe brand. The difference in the product is informed to buyers through advertisement and promotion (non-price competition), as shown in the table above. Having understood the perfect and monopolistic competition, we cannot easily differentiate between the two! ConclusionAs stated earlier, this particular topic is one of the very prominent topics covered extensively in microeconomicsMicroeconomics is a ‘bottom-up’ approach where patterns from everyday life are pieced together to correlate demand and supply.read more. Hence, it helps managers and business leaders analyze and understand the prevailing situation in the market to make vital decisions. There is no end to any analysis because the differences between the research might vary from one analyst to another depending upon their approach and objective. Moreover, the strategy and goal of the management might rely upon the time horizon. For example, short-term and long-term. We hope this article clarifies perfect and monopolistic competition by thinking on the same line. Recommended ArticlesThis has been a guide to Perfect competition vs. Monopolistic competition. Here, we discuss the top differences with infographics and a comparison table. You may also have a look at the following articles: –
What is a difference between a monopoly and a perfectly competitive firm?Key Takeaways:
In a monopolistic market, there is only one firm that dictates the price and supply levels of goods and services. A perfectly competitive market is composed of many firms, where no one firm has market control.
What is one difference between perfectly competitive firms and monopolies quizlet?perfectly competitive firm can increase the quantity it sells at the market price, whereas the monopoly must lower its price to sell more.
What are 3 differences between perfect competition and monopolistic competition?Other differences between perfect and monopolistic competition include the barriers to entry and exit, the slope of the demand curve, average revenue and marginal revenue, product standardization, and price determination among others.
What is the main difference between a competitive firm and a monopoly firm quizlet?What is the key difference between a competitive firm and a monopoly? A monopoly firm has market power, the ability to influence the market price of the product it sells. A competitive firm has no market power.
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