sk8ie_boi said:
Not exactly mate.
First of all, there are two extremes:
~ Pure competition - where there are typically many small competitors, and
~ Monopoly - where there is only one large firm in the market
But this may not always be the case, often there are a number of competitors in the market, but not so many as to regard each of them as having a negligible effect on price. This is the situation known as oligopoly. The model of monopolistic competition is a special form of oligopoly that emphasises issues of product differentiation and entry.
You are incorrect
Monopolistic competition need not be an occurance in an oligopoly market.
Monopolistic competition does focus on differentiation, but makes no implication on the level of competition in the market otherwise.
Good example is Hotels. This is an example of monopolistic competition. Some hotels are in better locations than others, some focus on luxury, others focus on budget. But theres still a shit load of hotels out there driving the price down (which limits the ability of the sydney shangrila to charge $1 000 000 a night - as even bill gates probably wouldn't pay that if he could save $999 900 by staying at a hotel without a harbour view.).
On the other hand another example might include concert venues. In sydney theres probably only three choices for a big band - Hordern Pavillion, Acer Arena or the Entertainment Centre. Each offer slight differences in location, and packages, and credibility, but you could say the market is in oligopoly, therefore they can tend to charge higher prices.
Two extremes, that are both examples of monopolistic competition.
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Anyway, to the question....
A free market generally implies less government intervention and regulation. So a market that is free to operate as is. It is an interesting discussion which has eminated since the times of Smith against the mercantalist writers who recomended protectionist policies. Smith a believer of natural law suggested that the market would achieve optimal outcomes (the invisible hand).
The classical writers generally all supported this assertion, however when Karl Marx came along everything changed. He developed theories which demonstrated how the working class is disadvantaged over the capitalist and land owning classes. Socialism received a major boost from these, and government intervention became the dominant approach in some countries (which became communist) while others still maintained free markets (such as the capitalist economies of the west). Nonetheless, even in capitalist countries, the socialist writing of marx resonated with the working class which resulted in the formation of many labour orientated political parties (labour and labor in Australia and Britain are examples). At the turn of the century (1900's) free markets generally prevailed, however these labour organisations (with the unions) started promoting a more regulated economy. With the great depression and the work of Keynes, the government as a regulator and interventionist became the dominant view even in capitalist economies - however capitalism was still seen as a more favourable alternative to a planned economy. It was only until the influence of Milton Friedman of the chicago school of economics swung the debate back to free'er markets. Margaret Thatcher and Ronald Reagan were incredible influential conservative leaders who adhered to the "friedman way" if you like, and this resulted in waves of microeconomic reforms which promoted the market as a resource allocator. This is sometimes referred to as economic rationalism / liberalisation.
In the 1990's however, despite the benefits of the reforms (which are more likely being experienced now than necessarily in the 1980's) - the reform process was softened. In the USA, Bill Clinton, and in the UK Tony Blair promoted something known as the "Third Way" neither economic rationalism or socialism - a kind of happy medium - sometimes refered to as civilising capitalism. This promoted capitalism as the most effective means of achieving economic outcomes, however sought to adjust the consequences such that more favourable social outcomes were achieved.
