A monopolistic model and a perfectly competitive model are economic presentation of two different market structure that can be differentiated on the basis of market share, control over the price and barriers to entry in the market. In a perfectly competitive market model, there are a huge number of firms and no single firm has a proper control over the market (Taylor, Stonebarger & Leven, 2015). Contrary to the perfectly competitive model, a monopolistic market model comprises of only a single firm that decides the price, supply level of goods and has a total control over the market. However, a monopolistic competitive market model is something that tends to rely between monopolistic and perfectly competitive model (Besanko & Braeutigam, 2015).
According to Sloman, Guest & Garratt (2018), there are many firms and consumers in the market place and every organisation has a particular degree of control over the market. On the other hand, the level of barriers to enter the market is comparatively more than a monopolistic market model and less than a perfectly competitive market. Furthermore, a comparison can also be made in terms of resulting price, output, profitability and efficiency of the firms (Besanko & Braeutigam, 2015).
In terms of price, a firm operating in a monopolistically competitive model can be considered as a price maker as every individual organisation decides its own price due to limited substitution available in the market. On the other hand, a firm operating in a perfectly competitive market is found to be a price taker due to offering of identical products and services (Sloman, Guest & Garratt, 2018). Furthermore, the output is considerably more in the case of perfect competition model as compared to monopolistic competition model. In other words, under monopolistic competition, the equilibrium position is MC = MR, which is lower than the AR. Alternatively, under perfectly competitive model, the MC = MR = AC = AR, which makes the equilibrium position (Taylor, Stonebarger & Leven, 2015). Hence, firms under monopolistic competition earn good profit or super normal profit that makes them produce less products or services. In the same manner, firms under perfectly competitive model earn no profit that makes them produce more products and services to survive in the market.
Finally, it is important to note that under monopolistic competition, both efficient and inefficient firm can exists or survive because buyers have their own preferences for products in the market. But, under perfectly competitive model, an inefficient organisation cannot survive or exists as its products are identical in nature. Therefore, it can be said that a perfect competition is an assumption based market situation, whereas a monopolistic competition is an original fact that can exists in the real scenario.
Besanko, D., & Braeutigam, R. (2015). Microeconomics. Hoboken, N.J.: Wiley.
Sloman, J., Guest, J., & Garratt, D. (2018). Economics. Harlow, United Kingdom: Pearson Education Limited.
Taylor, T., Stonebarger, T., & Leven, J. (2015). Economics. Chantilly, VA: Teaching Co.