Imperfect competition

The concept of imperfect competition was brought by Mrs. Joan Robbinson in England and by E.H. Chamberlin in America in 1993. It is an important market segment where the individual firms maintain their control over the price to a smaller or higher degree.

Under imperfect competition, there is a large number of buyers and few sellers. Each seller can follow it’s own price-output policy. Each producer produces a differentiated product which is a close substitute for each other. Thus, the demand curve under monopolistic competition is highly elastic.

According to Mrs. Joan Robbinson, "Imperfect competition is the market structure where buyers and sellers have imperfect knowledge of market situation regarding prices and commodities, and producers adopt the policy of product differentiation."

According to P. A. Samuelson and W. D. Nordhaus, " Imperfect competition prevails in the industry whenever individual sellers can affect the price of their output."

Features/ Characteristics of imperfect competition:

A. A large number of buyers and few sellers
There are a large number of buyers and few sellers in this market. These firms are small in size. Every firm acts independently without concern about the reaction of its competitors.

B. Product differentiation
The product of each seller in this market may be similar but not identical to the product of other sellers in the industry. For example; a firm may be producing Horlicks which may be similar to another kind of product like Boost, Complan, etc.

C. Selling cost
There is product differentiation in this type of market. So, selling costs are important to convince the buyer to change their preferences as the products are the substitute for each other.

D. Free entry and exit of the firm
Firms under imperfect competition are free to join and leave the industry at any time they like to. If any individual finds potential profit then he/she can enter into the industry and if they are suffering the loss they may exit. However in the case of Duopoly and Oligopoly market there are entry barriers.

E. Price maker
Under this market, every firm is a price maker. It can determine the price of its own brand and product itself.

F. Blend of perfect competition and monopoly
In this market, every firm has monopoly power over its product. At the same time, there is competition because the consumer assumes different firms' products as a close substitute.

Types of imperfect competition:

1. Oligopoly market:
Oligopoly is a market situation in which there are few firms selling a homogeneous or differentiated product. It is not too difficult to point out the number of firms in the market. There may be 2 or 3 or 4 or 5 firms in the market. The firms are mutually interdependent. The entry and exit of a firm are difficult in an Oligopoly market. There are heavy expenditures and advertisements in the market.

2. Duopoly market:
Duopoly means that type of market in which there are two sellers, selling homogeneous or differentiated products. These two sellers exercise monopoly among themselves in the sale of the product produced by them. Both the sellers are completely dependent and there is no agreement between them although they are dependent.

3. Monopolistic competition:
Monopolistic competition refers to the market structure in which there are many sellers producing differentiated products. Differentiated products have different characteristics. Eg; Laptops have different characteristics in their size, storage, RAM, Battery capacity, Processors, Speed, etc. As these products have different characteristics, sellers can sell them at different prices.

4. Monopoly: A monopoly market is a type of market structure where a single firm or entity is the sole producer and supplier of a particular product or service, with no close substitutes available. This firm dominates the entire market, giving it significant control over the price and output of its product. High barriers to entry, such as large capital requirements, legal restrictions, or control over essential resources, prevent other firms from entering the market and competing.

Imperfect competition