Imperfect competition in the economic theory refers to a market structure that shows some competitive market’s features. It can also be defined as a market whose operations are not under rigid rules exhibited by a perfect competition.
Perfect competition, refers to a market or industry where no single supplier has the ability to influence the prices, barriers to exit or entry are small, there is a high number of buyers and sellers, same goods are offered by all suppliers and the information on processes and pricing is always available.
There are different types of imperfect competition including oligopoly, monopsony and monopolistic competition. Oligopoly refers to an imperfect competition where a product is sold by just few sellers. Monopsony is a situation where there is a single buyer but many sellers and oligopsony which implies a situation where buyers are few but sellers are many. Monopolistic competition implies a situation where sellers who produce products that are highly differentiated are many.
Noticing imperfect competition in the market is easy because resources are not allocated efficiently. Market control makes the market with an imperfect competition inefficient. Monopsonistically and monopolistically competitive companies have modest degree of the control of a market. Significant control of the market rests with oligopsonistic and oligopolistic companies.
Nevertheless, whether there is a significant or modest control of a market, the demand curves that are faced by sellers due to imperfect competition are negatively-sloped. On the other hand, buyers face supply curves that are positively-sloped. Either way, both cases do not present a situation where price equals the marginal cost. Satisfaction that is enjoyed from production does not equal satisfaction that is lost from the foregone.
Corrective policies of the government are called upon in some cases because resources’ allocation is inefficient and undesirable. Despite the fact that monopsonistic and monopolistic competition is inefficient, the problems of inefficiency are relatively minor. When trying to rectify inefficiency, corrective measures by the government in most occasions worsen the situation. Contrary to this, oligopsony and oligopoly inefficiencies are relatively severe and they usually prompt the government to take a close scrutiny.
Imperfect competition is a description of the competition in the real world markets. Today, there are sellers and industries that follow this competition to maximize profits. They achieve this by influencing prices to make more profits from their business operations. This is because by selling non-identical goods, the sellers can easily raise prices to earn more profits.
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