Perfect Competition vs. Monopoly: A Comparative Analysis

Perfect Competition

Characteristics

1. Companies cannot influence product prices.
2. Market share does not influence market price.
3. Consumers are fully informed.

Monopolistic Market

Characteristics

1. Monopolists control prices, producing most or all goods.
2. Monopolists can manipulate supply to inflate prices.
3. Consumers face limited choices and potentially unfair pricing.

Inefficiencies of a Monopolistic Market

1. Allocative Inefficiencies: Society's resources are poorly allocated, limiting consumer choice.
2. Productive Inefficiencies: Lack of competition stifles innovation and service improvement.
3. Deadweight Loss: Monopolists' arbitrary pricing leads to social welfare loss.

Perfect Competition vs. Monopolistic Market

Example

• Competitive Market: Multiple gasoline companies; lower oil prices lead to lower gas prices; diverse distribution networks foster competition.
• Monopolistic Market: One company controls all gas stations; prices may rise despite international oil price changes; poor service due to lack of competition.

Natural Monopoly

Definition

A natural monopoly occurs when a single company can supply the market most efficiently due to decreasing costs (economies of scale).

It's economically rational when one company providing services is cheaper.

Includes public services:

• Electricity
• Gas
• Telecom
• Postal Services
• Water