Imperfect competition

Imperfect competition

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In economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition
Perfect competition
In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets...

 are not satisfied. It is a market structure that does not meet the conditions of perfect competition.
Forms of imperfect competition include:
  • Monopoly
    A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

    , in which there is only one seller of a good.
  • Oligopoly
    An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...

    , in which there are few sellers of a good.
  • Monopolistic competition
    Monopolistic competition
    Monopolistic competition is imperfect competition where many competing producers sell products that are differentiated from one another...

    , in which there are many sellers producing highly differentiated goods.
  • Monopsony
    In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers...

    , in which there is only one buyer of a good.
  • Oligopsony
    An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of buyers...

    , in which there are few buyers of a good.
  • Information asymmetry
    Information asymmetry
    In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure...

     when one competitor has the advantage of more or better information.

There may also be imperfect competition due to a time lag in a market. An example is the “jobless recovery
Jobless recovery
A jobless recovery or jobless growth is an economic phenomon in which a macroeconomy experiences growth while maintaining or decreasing its level of employment...

”. There are many growth opportunities available after a recession, but it takes time for employers to react, leading to high unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

. High unemployment decreases wages, which makes hiring more attractive, but it takes time for new jobs to be created.

Other references

  • Vatiero M. (2009), "An Institutionalist Explanation of Market Dominances". World Competition. Law and Economics Review, 32(2):221-6.