Perfect Competition and a Monopoly

The two market structures of Perfect Competition and a Monopoly have many differences, in essence being the opposite of one another. Perfect competition is a theoretical market structure in which the following criteria are met: all firms sell an identical product, all firms are price takers, meaning they cannot influence the market price of their product; market share has no influence on price; buyers have complete or "perfect" information – in the past, present and future – about the product being sold and the prices charged by each firm; resources such a labor are perfectly mobile; and firms can enter or exit the market without cost.

Perfect competition is the opposite of a monopoly, in which only a single firm supplies a good or service and that firm can charge whatever price it wants, since consumers have no alternatives and it is difficult for would-be competitors to enter the marketplace. Under perfect competition, there are many buyers and sellers, and prices reflect supply and demand. Companies earn just enough profit to stay in business and no more. There are a large number of buyers and sellers in a perfectly competitive market. The sellers are small firms, instead of large corporations capable of controlling prices through supply adjustments. They sell products with minimal differences in capabilities, features, and pricing.

This ensures that buyers cannot distinguish between products based on physical attributes, such as size or color, or intangible values, such as branding. A large population of both buyers and sellers ensures that supply and demand remain constant in this market. As such, buyers can easily substitute products made by one firm for another. A monopoly refers to a sector or industry dominated by one corporation, firm or entity. Monopolies can be considered an extreme result of free-market capitalism in that absent any restriction or restraints, where a single company or group becomes large enough to own all or nearly all of the market (goods, supplies, commodities, infrastructure and assets) for a particular type of product or service.

Antitrust laws and regulations are put in place to discourage monopolistic operations – protecting consumers, prohibiting practices that restrain trade and ensuring a marketplace remains open and competitive. "Monopoly" can also be used to mean the entity that has total or near-total control of a market.

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