What is the difference between competition and monopoly?


The market, in its full sense, is a vast commercial area of exchange, trading, within which the trade link between production and service is established.

Competition is the main regulating and stimulating force of market relations. In a competitive market environment, there is active competition between two or more entities of the same or similar activity to gain an advantage in a certain arena. This process forces the entrepreneur to engage in a competitive mode, which automatically means thinking about developing their product or service, increasing efficiency, obtaining a quality mark, introducing innovations, etc. The highly competitive market is unequivocally a broadcaster of progress and the development of the trading industry.

Therefore, competition in the market is the main tool for determining quality and price. For example, consider the production of cell phones. Today, many brands around the world are fighting for the unconditional championship in the market, improving the technical data from series to series, increasing the quality, trying to add features and innovations that have never been produced before. It turns out that the competition in the market naturally shapes the demand for quality, as does price regulation.

Now let’s imagine that there is one hardware company in the market that produces products that are not very quality, but the consumer has no choice and is satisfied with the products that this only company offers. Therefore, the company does not face the problem of sales, which does not cause an extra need to think about the product’s shortcomings. The market value of goods also entirely depends on the entrepreneur. As it operates in a non-competitive environment, it does not take into account market trends in the price determination process. When a particular product or service has no substitute in the market, a competing entity, such market data is called a monopoly.

What is a monopoly and how does it affect the market?

When a company has monopoly power and has no competitor in its field of the market, it is unmotivated for the company to focus on development. At first glance, everything is in order, so the quality of the development seems to be an undeeded waste of time and finances.  It also imposes a market value on production, which is high compared to the competitive price. The high price reduces the demand for the product, whereas the consumer does not have mass access to the imposed price, so the demand for production is also low. However, there are exceptions when they have monopoly power over the production/service of strategic importance, for example, electricity, and gas supply companies. At such times the customer is not able to choose a provider, however, he can not refuse to use it due to need, so he has to agree to the terms and fees of the supplier.

The difference between a competitive market and a monopoly is clear. The competitive market is free and consistent with supply and demand; Whereas during the monopoly, one particular company dominates the sector, it is possible to create an artificial shortage of products in the market, increase prices, sell substandard products and leave the consumer with no alternative.

Source:https://www.investopedia.com/, https://www.investopedia.com/