Imperfect Competition

Reviewed by Anjaneyulu | Updated on Sep 28, 2020


Imperfect competition is a competitive market environment where there are many vendors. But in comparison to the perfect competitive market scenario, they sell heterogeneous (dissimilar) products in competitive markets which are, as the name suggests, imperfect.

Characteristics & Causes

Imperfect competition is true competition in the world. Some of the manufacturers and sellers are doing it today to gain surplus profits. In this scenario, the seller takes advantage of the privilege of influencing the price to gain more money.

If a retailer sells a non-identical product on the market, he will increase the prices and earn profits. High profits allow other sellers to enter the market, and sellers who suffer losses can leave the market very quickly.

Imperfect markets do not meet the stringent standards of a hypothetical, perfectly, or purely competitive market. They are characterized by competition for market share, high entry and exit barriers, various products and services, and a small number of purchasers and sellers.

Conditions that lead to imperfect competition include:

  1. A limited flow of cost and price information
  2. Monopoly control of some suppliers
  3. Collusion of sellers to keep prices high
  4. Maintain discrimination by sellers among buyers based on the buying power

Forms of Imperfect Competition

Imperfect competition is, in economic theory, a form of market structure that demonstrates some but not all features of competitive markets.

Types of imperfect competition include:

  • Monopolistic competition: This is a situation in which many firms compete with slightly different goods. The costs of production are above what perfectly competitive companies can achieve, but society benefits from the distinction of the products.

  • Monopoly: A corporation that has no competition in its business. A monopoly company produces less production, has higher costs, and sells its product at a price higher than the price if it were limited by competition. Such adverse outcomes create oversight by the government in general.

  • Oligopoly: This is a market with only a few firms. They form a cartel to reduce production and boost profits in the way a monopoly does. It includes duopoly, which is a particular oligopoly type, with only two firms in one industry.

  • Monopsony: A single-buyer market and many sellers.

  • Oligopsony: A market with few buyers and many sellers.

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