Classroom Companion: Business

Definition 13.3 Monopolistic Competition
Monopolistic competition implies that there are many sellers in the same marketplace 
offering differentiated products, for example, shoes with different designs, materials, 
and quality. Other examples are restaurants and producers of cheese, soap, cars, and 
clothing.
13.1 · Definition of Market Types

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The products in a monopolistic market may serve the same purpose, but differen-
tiation makes the products unique so that they are not exact substitutes. The prices 
of products from one supplier are, in general, independent of the prices set by 
other suppliers.
In the digital economy, the markets for smartphones, personal computers, and 
television sets are monopolistic markets. The market for streaming services with a 
few big and many small competitors may also be regarded as a combination of 
monopolistic market and oligopoly.
Definition 13.4 Perfect Competition
Perfect competition is a theoretical model that describes markets with many sellers 
and buyers, where both sellers and buyers have perfect information about prices and 
customer preferences. Opposed to the oligopoly, the actions of a single competitor 
will not change the composition of the market.
In a perfect market, the products are indistinguishable, there is no transaction cost 
associated with the sales process, and there are no externalities that may favor some 
competitors or change the market rules. Real markets are only crude approxima-
tions of this model. Almost perfect competition may exist in commodity markets 
with many suppliers and undifferentiated goods where price is the only factor dis-
tinguishing the products from different suppliers. In the digital economy, perfect 
competition occurs in markets for digital freelance services—webpage design, 
brand design, visual design, writing, and translation services.
The above market types are related to the seller side only. There are also mar-
kets where the market behavior is determined by the number of buyers, that is, if 
there is only one or just a few buyers. There are several examples of such markets 
in the digital economy. All of them are multisided platforms (see 
7
Chap. 
10
).