Wondering what does this mean??? Well, to get you acquainted to it; Imperfect Competition means is a market situation that is competitive in nature wherein there are many sellers, but they are selling all types of heterogeneous (dissimilar) products / goods as opposed to the competitive market. The name itself suggests the same.
Imperfect in nature, but yet competitive.
In today’s world, Imperfect competition is real and exists everywhere. It is followed today to earn surplus profits by the sellers, they also try to influence the price of the product to earn more profit; unlike the Perfect Competitive Markets, where the market price of the product cannot be influenced by any person / firm, also there is no barrier for entry and exit for the sellers in Perfect Competitive Market In Perfect Competitive Market, the suppliers offer similar / homogenous goods and there exist information asymmetry that encourages costs and price asymmetry. Incase of imperfect market, it will have characteristics that are exactly opposite to the perfect competition market. However, Government intervention can avoid such situation.
In short, an imperfectly competitive firm
- would like to sell more at the going price
- faces a downward-sloping demand curve
- recognizes its output price depends on the quantity of goods produced and sold
Perfect and Imperfect Competitive Markets – Compared
If we use these four main characteristics to measure the competitiveness of a market, we get two main types or categories of markets – perfectly competitive markets & imperfectly competitive markets.
The key characteristics of which define perfect & imperfect competitions are are 1) Many buyer & seller 2) No barrier to entry and exit 3) Identical product and 4) perfect Knowledge.
The perfectly competitive market is any market where all the above four assumptions are met. Whereas incase of imperfectly competitive market is any market where any of the assumptions are broken. For our understanding, lets say if there are “barriers to entry” to entering the market, then the market is considered as imperfectly competitive market .
Most common types of imperfect markets are:
– Monopoly – only one seller
– Oligopoly – few sellers of goods
– Monopolistic competition – many sellers with highly differentiated product
– Monopsony – only one buyer of a product
Key types of these Markets are:
a. A single supplier
b. Single / Unique Product, no close substitutes for the product
c. Restricted entry and exit in the market
d. Specialised information of technique of production of product unavailable to other producers
a. Industry dominated by a small number of large firms
b. Firms sells identical or differentiated products
c. Barriers to entry in the market
3. Monopolistic competition
a. Large number of small firms
b. Similar but not identical products are sold
c. Comparatively free entry and exit in that market, may be restricted at times
d. Extensive knowledge of technology and price.
a. Single buyer, no alternate buyers
b. Demand is controlled by the buyer
c. Dominates the employment
d. High Risk for seller
e. Restriction of entry in the market.
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