Imperfect competition is a situation on the market when a perfect competition is impossible. In the real world, it’s very difficult to reach a situation where it will be no force manipulating and controlling others. That’s why most of the markets choose imperfect competition.
There is no exact definition of the term, as it contains such forms of competition as an oligopoly, monopolistic competition, monopoly, and monopsony.
Key characteristics of the imperfect competition:
- Presence of entry barriers in the industry;
- Differentiation of products;
- The bulk of sales comes from one or several manufacturers-leaders;
- Ability to control fully or partially the price of the products.
The other crucial peculiarity is the lack of the true information about the product. Both buyers and sellers can hide information about the product to reach more profitable conditions, for instance.
Imperfect Competition Types
There are different types of the imperfect competition such as:
- Monopoly, in which there is only one seller (for example, the market for gas supply);
- Oligopoly, in which there are few sellers (e.g. mobile services);
- Monopolistic competition, in which there are many sellers producing similar but simultaneously slightly different products (differentiation criterion can even be the location of the seller);
- Monopsony, in which there is only one buyer (e.g., the market for heavy weapons);
- Oligopsony, in which there is a small number of buyers.