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 will cause market inefficiency when it happens, resulting in market failure.[1] Imperfect competition is a term usually used to describe the seller's position, meaning that the level of competition between sellers falls far short of the level of competition in the market under ideal conditions.[2]

The structure of a market can significantly impact the financial performance and conduct of the firms competing within it. There is a causal relationship between structure, behaviour and performance paradigm. The characteristics of market structure can be measured by evaluating the degree of seller's market concentration to determine the nature of market competition. The degree of market power refers to the firms' ability to affect the price of a good and thus, raise the market price of the good or service above marginal cost (MC). Moreover, market structure can range from perfect competition to a pure monopoly. Monopolistic competition and oligopoly competition are the extreme conditions of market structure. Perfect competition occurs when there is intense price competition, perfect competition is a market situation and competitive outcome that economists use as a benchmark for economic welfare analysis and efficiency.[3] In perfect competition, prices move closer to marginal cost when at least two of the three conditions—that there are many sellers in the market, that there is excess capacity, and that there are homogeneous products.[4]


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