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One difference between monopolistic competition and pure competition is that there is some control over price in monopolistic competition.
What is monopolistic competition?
When there are numerous companies in a market offering products that are similar but not identical, monopolistic competition arises.
These businesses lack the authority to limit supply or raise prices in order to boost profits, unlike monopolies. In monopolistic competition, businesses often work to distinguish their goods in order to generate profits above the market. Some economists criticize the widespread use of heavy marketing and advertising by businesses under monopolistic competition as being wasteful. Between monopoly and perfect competition, monopolistic competition sits in the center and combines aspects of both.
In monopolistic competition, all firms have a similar level of price-setting authority and a relatively low degree of market dominance. Demand is very elastic in the long run, which means it responds to price fluctuations.
What is pure competition?
A market structure known as "pure competition" is one in which several manufacturers offer consumers comparable goods. The ideal conditions for this market model are created by a huge number of homogeneous items, numerous sellers who can quickly enter the market, and buyers who are fully informed about the companies and their products.
The fact that businesses sell comparable goods is one of pure competition's key characteristics. Each company has an equal market share because they are unable to compete on the market due to identical prices.
Since there are no specific hurdles to entry into such a market, there are many enterprises that produce standardized items in an environment of pure competition. In this market paradigm, suppliers have no influence over market pricing; instead, prices are determined by customer demand.
A customer is aware that one of the businesses can offer the product for less money. As a result, firms are reluctant to raise prices before their rivals. Some businesses choose to produce goods of poorer quality in order to lower the price of the product in order to make more profit.
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