Imperfect competition

In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market. Imperfect competition causes market inefficiencies, resulting in market failure.[1] Imperfect competition usually describes behaviour of suppliers in a market, such that the level of competition between sellers is below the level of competition in perfectly competitive market conditions.[2]

The competitive structure of a market can significantly impact the financial performance and conduct of the firms competing within it. There is a causal relationship between competitive structure, behaviour and performance paradigm. Market structure can be determined by measuring the degree of suppliers' market concentration, which in turn reveals the nature of market competition. The degree of market power refers to firms' ability to affect the price of a good and thus, raise the market price of the good or service above marginal cost (MC).

The greater extent to which price is raised above marginal cost, the greater the market inefficiency.  Competition in markets ranges from perfect competition to pure monopoly, where monopolies are imperfectly competitive markets with the greatest ability to raise price above marginal cost.

  1. ^ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 153. ISBN 0-13-063085-3.{{cite book}}: CS1 maint: location (link)
  2. ^ Besanko, David (2012). Economics of Strategy (6th ed.). the United States of America: Hoboken, NJ : John Wiley & Sons. pp. 171–172. ISBN 978-1-118-27363-0.