What is imperfect competition?
In economics, imperfect competition means markets that aren't working perfectly. This happens a lot in the real world. It's used when there's not enough competition among sellers. When a market has perfect competition, prices mostly depend on the demand and supply of the product. But in imperfect competition, a seller can influence the price of their product. Sellers can sometimes have more control over prices, which can make things less fair for buyers.
Imperfect Competition Explained
Imperfect competition markets are characterized by the presence of non-competitive sellers who exercise considerable control over pricing strategies without external direction. This results in product differentiation, enabling sellers to collect higher profits at the expense of market efficiency, leading to overall economic value losses. The dominance of a single seller capturing a substantial market share, typically around 60%, serves as a clear indicator of imperfect competition, contrasting starkly with the dynamics of a perfectly competitive market where multiple sellers compete for the same target customer base through persuasive selling strategies.
In such imperfectly competitive scenarios, the charisma of high profits acts as a magnet for new entrants, while strict barriers to entry often hamper the ease of market access. Unlike in perfect competition, where pricing autonomy is controlled by the uniformity of product prices among competitors, non-homogeneous product offerings in imperfect competition allow sellers the freedom to set prices strategically to maximize their profit margins in the absence of direct competition. While comprehensive product information may not always be readily available in imperfect competition markets, its availability is significant in encouraging consumer decision-making in the context of a perfectly competitive market environment.
Structure of Imperfect Competition Market
The concept of imperfect market competition is applicable to the subsequent market types:
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Oligopoly: A small cluster of sellers with the capacity to influence the activities of other businesses.
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Monopoly: A market where a single seller provides diverse goods and services and holds sway over pricing.
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Duopoly: Comprising only two sellers, each wielding absolute power and control.
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Oligopsony: Characterized by a minimal number of buyers in the market.
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Monopsony: A market structure dominated by a solitary buyer.