Table 104

Summary of Perfect Competition and Monopoly (Monopsony) Market-Structure Characteristics Perfect Competition Monopoly (Monopsony)

Number of actual or potential competitors

Product differentiation


Conditions of entry and exit

Profit potential


Many small buyers and sellers

None—each buyer and seller deals in an identical product Complete and free information on price and product quality

Complete freedom of entry and exit

Normal profit in long run; economic profits (losses) in short run only

Some agricultural markets (grain); commodity, stock, and bond markets; some nonspecialized input markets (unskilled labor)

A single seller (buyer) of a valued product

Very high—no close substitutes available

Highly restricted access to price and product-quality information

Very high barriers caused by economies of scale (natural monopoly), patents, copyrights, government franchises, or other factors Potential for economic profits in both short and long run

Monopoly (sellers): Local telephone service (basic hook-up); municipal bus companies; gas, water, and electric utilities. Monopsony (buyers): state and local governments (roads): U.S. government (defense electronics)

of expected costs and expected benefits, the monopoly advantages can act as a powerful inducement to competitors. Preservation of monopoly advantages is only likely when firms maintain the distinctive and valuable characteristics sought by customers. Similarly, the search for above-normal profits is only likely to be successful when firms create products that are faster, cheaper, or better than those offered by rivals.

market niche

A segment of a market that can be successfully exploited through the special capabilities of a given firm or individual

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