Perfect Competition Market and Monopoly Essay

A perfect competition market refers to a market that has many buyers as well as sellers. The goods sold in the market are homogeneous On the other hand, a monopoly refers to a scenario whereby there is only one seller in the market (Katz, 2014). In this type of market, the goods offered by the monopoly have no substitutes and at most times buyers have to buy them irrespective of their cost or quality. In this study, we will do a comparison of the two markets with key interest being in how similar or different the two markets are.

The first difference between the two markets comes in terms of size. Essentially, monopolies are huge organizations that have very many employees. They generally control the market for the product they are producing (Lerner, 2015). On the other hand, Perfect competition firms are often small in comparison to the market they serve. While monopolies are responsible for coming up with the prices of commodities, perfect competition relies on prevailing circumstances to set up the prices for their commodities.

In a perfect competition, different firms usually offer goods and services that are of the same kind. Notably, in such markets, the consumer is able to choose the good he or she wants out of the several alternatives they have (Bresnahan et al, 2017). This simply means if, for instance, a mobile service provider raises the price of their services the customer has suitable alternatives that he can opt for. On the contrary, a monopoly manufactures a unique product that has no equivalent substitute. This attribute is responsible for the freedom such firms enjoy in terms of capacity to control the demand and supply of the product to the market.

Freedom of entry and exit into a certain market is critical when one is trying to set up a business. Note that, a perfect competition allows for the entry and exit of the market at any time. In this type of market, the businessmen and the consumers are allowed to have access to information on production and price structure of different commodities. On the other hand, monopolies set up barriers that prevent individuals from entering the market (Bresnahan et al, 2017). The monopolies are able to set up the barriers because of the vast resources they have, the difficulty to get licenses from the government, and the exceedingly high cost of setting up the business and holding its patents. In some instances, the product produced might be too sensitive to be left in the hands of civilians. Products such as firearms and currency are usually left in the hands of one producer. This simply means that in case of any mishaps the company would be held responsible.

In a perfect competition, individuals are allowed to access information that is uniform across the board. In such a market, the businessman is aware of the price charges by each competitor (Makowski et al, 2014). As such the individual can shift his price to fit the needs of the consumers in the market. In addition, most of the firms use the same technology and production techniques and as such the products created are often of the same quality. Contrary, Monopolies enjoy exclusive control over the knowledge of the products that they produce (Makowski et al, 2014). The ability to control this kind of information is premised on the trademarks, patents, and copyrights that the companies set up. In essence, this scenario ensures that none of the people in the market can try and reproduce the same products without facing the repercussions of the law. This attributes grants monopolies the strength that they usually possess.

In terms of production per individual or per unit, a monopoly produces less and sells it at considerably high prices (Lerner, 2015). As such monopolies usually earn super profits in the markets that they operate in. On the other hand, the output per individual is higher in perfect competitions. However, the firms cannot enjoy huge profits because of the competition they face in the market. In addition, considering the small size of such firms they tend not to enjoy the benefits that are associated with economies of scale. This means that they end up spending more on production per unit as compared to most monopolies which are usually huge.

A perfect competition market is very unrealistic because it is impossible to have a market whereby there is price determination through the forces of demand and supply. In fact, no industry in the world has set its prices solely based on the demand and supply curve (Lerner, 2015). On the other hand, there are several monopolies that are in operation across the world. Additionally, it is equally difficult to have standardized products that are of exactly the same quality in the market as such the differentiated cost of products which is synonymous with monopolies is a much more realistic approach that is definitely practical.

Conclusion

In conclusion, it is important to understand that most markets try to move away from monopolies and encourage more markets that possess the characteristics of a monopoly. Essentially, it is important to understand that most of the firms in the current market fall neither on the two categories. However, history has shown that the railway system and the oil mines in the United States were previously owned by monopolies who gave below per services (Katz, 2014). As such, competition should be allowed in the market so that the quality of goods and services that customers are offered improves.

References

Makowski, L., & Ostroy, J. M. (2014). Perfect Competition and the Creativity of the Market. Journal of Economic Literature, 39(2), 479-535.

Bresnahan, T. F., & Reiss, P. C. (2017). Entry in monopoly market. The Review of Economic Studies, 57(4), 531-553.

Lerner, A. (2015). The concept of monopoly and the measurement of monopoly power. In Essential Readings in Economics (pp. 55-76). Palgrave, London.

Katz, M. L., & Shapiro, C. (2014). Systems competition and network effects. Journal of economic perspectives, 8(2), 93-115.