Difference Between Perfect Competition and Monopolistic Competition�

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• The term market can be described as any place where buyers and sellers meet, directly or through dealers, to conclude transactions.
• There are three types of market structure, i.e. perfect competition, monopoly and imperfect competition.
• Further imperfect competition can be of two types: Monopolistic competition and oligopoly.

Difference Between Perfect Competition and Monopolistic Competition

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.

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• 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 Monopolistic Competition?�

• A Monopolistic Competition Market consists of the features of both Perfect Competition and a Monopoly Market.
• A market situation in which there is a large number of firms selling closely related products that can be differentiated is known as Monopolistic Competition. 

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• The products of monopolistic competition include toothpaste, shampoo, soap, etc. 
• For example, the market for soap enjoys full competition from different brands and has freedom of entry showing the features of a perfect competition market. However, every soap has its own different features, which allows the firms to charge a different price for them. It shows the features of a Monopoly Market. 

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Difference -Meaning

• A market structure, where there are many sellers selling similar goods to the buyers, is perfect competition.
• Monopolistic Competition is a market structure, where there are numerous sellers, selling close substitute goods to the buyers that can be differentiated.

Difference

Regarding Product

• In Perfect Competition all sellers sell homogeneous or Standardized products
• In Monopolistic Competition sellers sell Differentiated products.

Price

• In perfect competition, the demand and supply forces determine the price for the whole industry and every firm sells its product at that price.
• In monopolistic competition, every firm offers products at its own price.

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Level of Knowledge

• There is perfect knowledge of market in Perfect Competition.
• There is imperfect knowledge of market in Monopolistic Competition.

Entry and Exit

• In perfect competition there is no Barrier to Entry and Exit
• In Monopolistic competition there are few barriers to Entry and Exit.

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Slope of the demand curve

• The slope of the demand curve is horizontal, which shows perfectly elastic demand.
• On the other hand, in monopolistic competition, the demand curve is downward sloping which represents the relatively elastic demand.

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Relation between AR and MR curve

• Average revenue (AR) and marginal revenue (MR) curve coincide with each other in perfect competition.
• Conversely, in monopolistic competition, average revenue is greater than the marginal revenue, i.e. to increase sales the firm has to lower down its price.

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Situation

• Perfect competition is an imaginary situation which does not exist in reality.
• Unlike, monopolistic competition, that exists practically.

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