Here's a detailed explanation of Imperfect Competition, including what it means, its characteristics, and how prices are determined:
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? What Do You Mean by Imperfect Competition?
Imperfect competition is a market structure where the conditions of perfect competition are not fully met. In such markets, individual sellers or buyers can influence prices, products are not identical, and full knowledge of the market may be absent.
> Definition:
Imperfect competition refers to a market situation in which either buyers or sellers have the power to influence prices, and the products are differentiated rather than identical.
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? Characteristics of Imperfect Competition
Feature Description
Product Differentiation Firms sell similar but not identical products (e.g., soap, clothes).
Price Makers Sellers have some control over price due to brand, quality, or service.
Lack of Perfect Knowledge Buyers and sellers do not have full market information.
Non-Price Competition Firms compete through quality, advertising, service, etc.
Barriers to Entry There may be some restrictions for new firms to enter the market.
Few or Many Sellers Depending on the type — could be a few (oligopoly) or many (monopolistic).
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? Types of Imperfect Competition
1. Monopoly – One seller dominates.
2. Monopolistic Competition – Many sellers with slightly different products.
3. Oligopoly – Few large sellers dominate.
4. Duopoly – Exactly two firms dominate.
5. Monopsony/Oligopsony – One or few buyers dominate the market.
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? How Is Price Determined in Imperfect Competition?
In imperfect competition, price is not determined by pure market forces of demand and supply alone — firms have pricing power due to differentiated products or limited competition.
? General Rules:
A firm sets its price by equating Marginal Revenue (MR) with Marginal Cost (MC).
The price is then read from the demand curve at the output level.
Prices tend to be higher and output lower than in perfect competition.
? For Example:
In monopolistic competition, each firm faces a downward-sloping demand curve and sets price above marginal cost.
In oligopoly, pricing depends on competitor behavior, sometimes leading to price rigidity.
In monopoly, the firm sets both price and quantity for maximum profit.
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✅ Conclusion
Imperfect competition is common in the real world, where firms have some control over pricing due to product uniqueness
