Pure Competition vs Monopolistic Competition

[forbiddensoulxx]

Hey guys, just wondering if the only different between these 2 market structures is the lack of homogenous products in a monopolistic competition market. Also, what would classify as a homogenous product, as this has been confusing me for quite a while.

[kbanks]

Hey guys, just wondering if the only different between these 2 market structures is the lack of homogenous products in a monopolistic competition market. Also, what would classify as a homogenous product, as this has been confusing me for quite a while.

Hi

Are you referring to perfect competition when you say pure competition? Not sure if they are interchangeable terms (they might be!) I just always learnt it as perfect competition.

To answer your question, those two market structures do have some similarities, but they also have quite a few differences. Perfect competition, as the name would suggest, is the perfect/ideal market structure, where all products are identical, the buyer has supreme knowledge, and each business has a small percentage of the market share - therefore, great for consumers.
Monopolistic competition is an imperfect market structure, where the businesses sell products that can be differentiated from each other (therefore, not homogenous) and makes independent decisions about prices.
Therefore, some of the key differences between these two structures are firstly, yes, the products, you're correct - monopolistic competition does not involve homogenous products. However, another difference is the fact that the businesses in monopolistic competition can choose their prices (they are price MAKERS, not price takers as in perfect competition).

In relation to the second part of your question, a homogenous product is defined as one that is easily substituted. That means that they have identical characteristics and are therefore forced to compete on price. An example may be fruit - if you are shopping for green apples, there is easy substitution between different brands/growers, and therefore there is competition based on price, not benefit to consumer or quality (as these are the same between different types of the product).

I hope this helps!
Karly

[S200]

The homogenous products is a main factor.
Also don't forget that the consumer has complete power in the pure/perfect competition, and very little in the Monopolistic competition.
A homogenous product is not Butter and margarine... they are supplementary products
A homogenous product is like buying Big M iced coffee from Woolworths or Farmers Union iced coffee from Coles.

Probably the best look at pure/perfect competition are the Markets in the different cities; like Vic Market in Melbourne.
Under the perfect competition, the consumer has all the power. They can barter the price of pumpkins with one guy, and if he won't come to the party, go off and start bartering with the guy opposite, who has the exact same type of pumpkin, and is only too happy to get a customer from his opposition.

[forbiddensoulxx]

Are you referring to perfect competition when you say pure competition? Not sure if they are interchangeable terms (they might be!) I just always learnt it as perfect competition.

Thanks a lot for your answer, that really helped! And I was referring to perfect competition in that instance, my textbook uses both the terms interchangeably.

[forbiddensoulxx]

The homogenous products is a main factor.
Also don't forget that the consumer has complete power in the pure/perfect competition, and very little in the Monopolistic competition.
A homogenous product is not Butter and margarine... they are supplementary products
A homogenous product is like buying Big M iced coffee from Woolworths or Farmers Union iced coffee from Coles.

Probably the best look at pure/perfect competition are the Markets in the different cities; like Vic Market in Melbourne.
Under the perfect competition, the consumer has all the power. They can barter the price of pumpkins with one guy, and if he won't come to the party, go off and start bartering with the guy opposite, who has the exact same type of pumpkin, and is only too happy to get a customer from his opposition.

Thanks for that!