Monopoly Vs Perfect Competition (class 12)


You must have surely played the game of
Monopoly in your childhood. However in economics monopoly has a
different meaning. In economics monopoly is referred to as a situation where a
single seller has a complete dominance in the entire market and serves a larger
number of buyers. An example of this is the Indian Railways. In India it is the
only train service provider serving the entire country. There are certain
features that makes monopoly monopoly. Let’s have a look at them one by one. The
first feature of monopoly is that there is only a single seller. The name itself
is self explanatory. Mono means one and poly means control.
Hence when a single firm has a control over the entire market we call it
monopoly. Entry Barrier. As single dominant player in the market it can create
barriers for outside firms by manipulating prices. An entry barrier can
also be because of government restrictions. In monopoly the form is the
price maker. Being the only firm the buyers have no other option but to
always go to the firm to buy the service or product. Hence the firm gets
to decide on the price it wishes to sell. Higher profits. As the monopolist
manipulates the entire market and decides the price on his terms he gets
to own super normal profits. No close substitute. We all know that Nestle
produces Maggie however we cannot say that Nestle has monopoly in the noodle
industry. This is because close substitutes like Top Ramen, yippie compete
with Maggie and ya do not forget Patanjali And last but not the least being the
only firm in the markets the firm itself is the industry. Now let’s have a look at
different types of monopolies we all know the fact that Pepsi and coca-cola
are the two main giants in the beverage industry. However let’s assume that these
two companies plan to collaborate and form just one company. Let’s call it
Pepsi Cola. Now there exists only one company in the market that dominates the
beverage industry. Such monopoly’s that happen because of voluntary mergers is
termed as voluntary monopoly. Now think of a remote village far somewhere in the
outskirts where there is only one doctor to treat the villagers. The doctor being a
monopolist may charge different prices to different patients. He might charge
the poor with less amount of money and the rich with high amount. Such
monopolies that discriminates between the customers is called as
discriminating monopoly. We all know that apples in India are grown in the
state of Jammu and Kashmir. This is because it has the climatic conditions
to support the growth of Apple’s. Such monopoly which is created because of
geographical benefit or climatic conditions are called as natural
monopoly. Our next type is public monopoly. Sectors
like railways and atomic energy are operated only by the Government of India.
When the government restricts firms to enter into the industry for public
welfare we call it public monopoly. Moving to the other extreme we have
perfect competition. Perfect competition is a situation when there are huge
number of sellers trying to compete with each other to serve a huge number of
buyers by selling homogeneous or identical products. Identical products
can be in the form of eggs, carrots etc. That is they should be similar in size
and shape. So does this mean that three sellers selling ice cream are also a
part of perfect competition. No. This is because ice creams can be similar but might
differ in taste size and shape. Remember similar is not equal to identical. So a
perfect competition is a situation when there are huge number of sellers trying
to compete with each other to serve a huge number of buyers by selling
homogeneous or identical products. Except for huge number of buyers and sellers
and identical products there are other features of perfect competition as well.
The first feature states that all the firms in perfect competition are price
takers. This is because all the firms are selling an identical product. If any firm
increases its price people will purchase the good from another firm. Hence no firm
is allowed to set the price. The price is set by the market demand and supply. Free entry and exit. There being lots of
sellers in the market there is no restriction for new firms to enter into
the market. There is free entry and exit for new firms. The next feature is Laisse
Laire. Laiisez Fairey in French means let do. However in economics it refers
to no government intervention. It means that in a perfectly competitive market
there is no restrictions in the form of transportation, setting prices, or
production from the government. Free transport. This means there is no extra
transportation cost that a single firm has to bear in perfect competition. It is
assumed that all the firms are close to each other. Hence enjoy benefits from
transportation. And last but not the least as we saw earlier no firm can
charge prices of its own as they run the risk of losing the customers. Hence a
single price permeates in the entire markets. I hope you liked the video if
you did then you know the drill do like comment share and subscribe
until then adios hasta LaVista

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