Imperfect competition

The study of the different market structures is of great importance when we talk about microeconomics. The way in which the market behaves, depending on the number of buyers or sellers, its dimensions, the existence of entry and exit barriers, etc. are all factors that will determine how to achieve a balance. One of these forms is imperfect competition, which is a situation that occurs in the competitive market in which a large number of sellers are observed, but sell heterogeneous products as opposed to the perfect competitive market scenario. As its name indicates, competitive markets are imperfect in nature and are capable of significantly affecting the products or services prices they distribute in the market. Whenever the principles of perfect competition are surpassed, then there will be imperfect competition. Since all real markets exist outside the plane of the perfect competition model, each can be classified as imperfect.

Related topics

Perfect competition, market economy, comparative advantage

What is imperfect competition?

Imperfect competition in the market occurs when one or more companies manage to influence in some way the price of a product because they offer products or limit their supply, making that the fewer companies there are, the greater the ability to influence the price of the article will be.

Characteristics of imperfect competition

In imperfect competition market, there are different characteristics that differentiate it from other types of market, among them we have:

• It has a low number of companies that make it up for what is a reduced market rate.
• The people who sell the products have the ability to influence their prices.
• The products offered within imperfect competition are considered by consumers as different.
• On the contrary, buyers and sellers have different types of information about it.
• Sellers have the ability to control the price of products, so most of the time they are very high.
• The high cost of the products can create barriers against the entry of the product to the market.
• It needs strong capital investments to enter the market.

Types of market with imperfect competition

There are three types of imperfect competition in the market:

• Monopoly: In this type of imperfect monopoly the seller has absolute control over a good or product and for this reason can make decisions about prices and the ways of sale. In the market, the monopoly manufactures less than the market actually needs in order to keep prices high. It is a type of market that harms consumers.
• Oligopoly: When we talk about oligopoly, we mean few sellers and each of them can influence the market. The products satisfy the same need and are perfect substitutes. Companies depend on each other because the decisions that one of them makes can affect the others.
• Monopolistic competition: This type of competition occurs when there are a large number of sellers who produce different goods at different prices, but none of them has a significant share of the market.

Advantages

Some of the main advantages of imperfect competition are:

• In it, a higher price can be imposed on the products, thus generating more profits.
• Barriers are created to prevent other companies from entering the market and so, avoid competition.
• There is greater profitability in the companies that must fight against competition.
• They have the possibility of sharing products on the market, because they can agree on prices and locations.
• They have a major impact on the market because they do not have competition and in this way, they make huge profits for their companies and their economies.

Disadvantages

Among the disadvantages of imperfect competition the following can be mentioned:

• It is a type of economy in which the government intervenes constantly, because of its prices in the market.
• If prices rise disproportionately, they may lose customers and with this, the product will fail in the market.
• Companies must work together to achieve greater demand.
• There is competition among the sellers because they are few and everyone knows the product well.

Examples of imperfect competition

Here is a list of companies that operate under the premise of imperfect competition. As explained above, many of the types of markets that make up imperfect competition are monopolies and oligopolies.

• Microsoft
• Telmex
• General electricity companies
• Gas companies
• Cable or satellite television companies, these enter this branch when they are located in places where there is no competition, as well as Internet companies.
• Oil producer Pemex
• PepsiCo
• Nestlé
• Kellogg´s
• Nike
• Bimbo Group
• Coca cola
• Visa
• Mc Donald.
• Mac
• Google
• General electric
• Loreal
• Mars