Perfect Competition and Monopolistic Competition notes-CSEET

Perfect Competition and Monopolistic Competition:

ICSI CSEET: The Council of the ICSI has released a notice regarding CSEET on the day of the inauguration of ICSI Golden Jubilee Celebrations on 4th Oct 2017.

The Gazette Notification on the Company Secretaries (Amendment) Regulations, 2020 has been published on 3^rd February 2020 in the Official Gazette of India and the same shall be applicable from the said date of publication.

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We are now going to discuss the details of CSEET Paper-3 Economics and Business Environment notes – Perfect Competition and Monopolistic Competition notes.

Perfect competition and Monopolistic competition

Perfect Competition and Monopolistic Competition:

(1)   Perfect Competition

In a perfect competition market structure, there are a large number of buyers and sellers. All the sellers of the market are small sellers in competition with each other. There is no one big seller with any significant influence on the market. So, all the firms in such a market are price takers.

There are certain assumptions when discussing the perfect competition. This is the reason a perfect competition market is pretty much a theoretical concept. These assumptions are as follows,

• The products on the market are homogeneous, i.e. they are completely identical
• All firms only have the motive of profit maximization
• There is free entry and exit from the market, i.e. there are no barriers
• And there is no concept of consumer preference

(2)   Monopolistic Competition

This is a more realistic scenario that actually occurs in the real world. In monopolistic competition, there are still a large number of buyers as well as sellers. But they all do not sell homogeneous products. The products are similar but all sellers sell slightly differentiated products.

Now the consumers have the preference of choosing one product over another. The sellers can also charge a marginally higher price since they may enjoy some market power. So, the sellers become the price setters to a certain extent.

For example, the market for cereals is a monopolistic competition. The products are all similar but slightly differentiated in terms of taste and flavours. Another such example is toothpaste.

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