A purely competitive market is a theoretical state in which no single buyer or seller has influence over the products sold in the market. Any seller enters the market to sell any product, and buyers are free to purchase any product desired. A large number of producers and sellers operate in the purely competitive market, and the products sold by one producer are easily replaced by a similar product from another producer. Prices for goods would be established by the rate the majority of consumers are willing to pay, and producers would adjust productivity to match the going price.
Monopolistic competition, describes a market in which multiple firms offer variations of the same product or multiple products are offered, each with variations. A variation may be a difference in quality, durability, price or utility. Like pure competition, a large number of firms sell to consumers. No barriers to entry prevent a business from competing in the marketplace, however, businesses will be forced to exit the market if consumers will not purchase their products. A real example of monopolistic competition is in the restaurant industry. A single cuisine may be served by more than a dozen restaurants, all differing in quality, quantity, price and cleanliness. Consumers are constricted only by personal preference and affordability in choosing a restaurant.
Depending on the product, many industries tend towards oligopoly, where a limited number of companies compete for consumer purchases. The quality of the product from one business to another may be differentiated or the products may be identical. Industries that persist with oligopolistic competition tend to be those that have significant barriers to entry, such as commercial and military aircraft manufacturers. The barriers to entry in the aircraft industry are regulatory and financial. The cost for producing a single jet is prohibitively expensive for most manufactures and therefore not worth the competition, even if the competition is limited.
A monopoly lacks any competition either within the market or within a specific industry. Monopolies are defined by a single business, operating without competition in the market. The main barrier to entry into monopolistic markets is that one firm holds all of the market share and no market share is available for other businesses to succeed. A monopoly may be formed if a company owns all of one single resource, holds the patent for making a specific type of product or if the government has disallowed any other business from competing in the marketplace. Since the early 20th century, however, the U.S. government has outlawed the creation of monopolies.