Definition
An imperfect competitor is a market participant, either a consumer or supplier, who has enough control over the market to influence the price of goods or services. This market power typically results from the entity’s ability to account for a large proportion of the demand or supply, thereby holding characteristics similar to monopsony or monopoly.
Examples
- Monopoly: A single firm dominating the market for electricity in a particular region can act as an imperfect competitor by setting prices higher due to lack of competition.
- Monopsony: A large corporation that employs the majority of the labor force in a small town can act as an imperfect competitor by dictating lower wages because it is the primary employer.
Frequently Asked Questions
1. What makes an imperfect competitor different from a perfect competitor?
An imperfect competitor has control over the price of goods or services due to its significant influence on market supply or demand, unlike a perfect competitor who is a price taker in a market with many small participants.
2. Can an imperfect competitor be a consumer?
Yes, an imperfect competitor can also be a large consumer, like a major retailer which can negotiate lower prices from suppliers due to bulk purchasing.
3. What are the economic implications of having an imperfect competitor in the market?
Imperfect competitors can lead to inefficiencies such as monopolistic pricing or reduced bargaining power for smaller entities, potentially resulting in less optimal market outcomes.
4. Can there be more than one imperfect competitor in a market?
Yes, but it usually leads to an oligopoly (few suppliers) or an oligopsony (few buyers), where a few participants control market conditions and prices.
Related Terms
Monopoly: A market structure where a single firm controls the entire market supply of a good or service, allowing it to set prices.
Monopsony: A market structure where a single buyer controls the market demand for a good or service, allowing it to set buying prices.
Oligopoly: A market structure with a small number of firms dominating the market, which can lead to collusion and less competitive pricing.
Oligopsony: A market structure with a small number of large buyers dominating the market, affecting the terms and prices upstream sellers face.
Online References
Suggested Books for Further Studies
- “The Economics of Imperfect Competition” by Joan Robinson
- “Industrial Organization: Contemporary Theory and Practice” by Lynne Pepall, Dan Richards, and George Norman
- “Microeconomic Theory: Basic Principles and Extensions” by Walter Nicholson and Christopher Snyder
Fundamentals of Imperfect Competitor: Economics Basics Quiz
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