Imperfect Market Structure & Types of Competition

Any economic market that does not fulfil the specific requirements of the ideal perfect or competitive market is referred to be an imperfect market.

It is a setting in which no one has clear knowledge where individuals have the ability to affect pricing. To some extent, all markets are imperfect. When a market is imperfect, skilled traders typically take benefit of the situation.

This might include monopolistic owners who capitalize from artificially low prices, investors who purchase or sell stocks based on insider knowledge, or buyers who engage in arbitrage to acquire products at artificially cheap prices and market them at higher prices elsewhere.

Competition for market share, rising barriers to entry and exit, various services and products, standards charged by price makers rather than supply and demand, imperfect or incomplete information about products and prices, and a small number of buyers and sellers are all factors that influence the study of real markets.

Traders in the financial market, for example, do not have perfect or even identical understanding of financial goods. A financial market's traders and assets are not perfectly homogenous. New information is not conveyed instantly, and reactions have a limited pace.

The phrase "imperfect market" seems to be a little misleading. Most individuals believe that an imperfect market is fundamentally faulty or unpleasant. This, nonetheless, is not always the truth. The range of market defects is as broad as the diversity of real-world markets some are either more or far less effective than others.

Types of Imperfect Markets:

While at least another condition of a perfectly competitive is not achieved, an imperfect market can result. Every sector has imperfections of some kind. The following structures exhibit imperfect competition:

Monopoly:

It is a structure where only 1 seller exists. This entity's products have no alternatives. These marketplaces have significant entry barriers and a single vendor who determines the prices of products and services. Customers may be unaware of price changes.

Oligopoly:

Such structure has a lot of customers but just a few buyers. Just those few market participants may prevent others from joining. They may establish pricing collectively, or, in the event of a cartels, one leads the way in determining the price for products and services, with the rest following.

Monopolistic Competition:

There are numerous suppliers in monopolistic competition who provide comparable items that cannot be replaced. Companies are competing with one another and set prices, but their individual actions have little impact on the other.

Monopsony and Oligopsony:

There are a lot of vendors in these structures, but there aren't a lot of purchasers. In both situations, it is the buyer who manipulates market pricing by pitting companies against one another.

Monopoly & Anti-Trust Policy:

When a business and its product offer control an industry or sector, it is referred to as a monopoly. A monopoly is referred to a company that has complete or near-complete authority over a market.

An organization that controls a business industry might take control of its position and exploit another. It has the ability to generate manufactured scarcities, set prices, and defy natural supply and demand rules.

It has the ability to restrict new entries into the industry, as well as experimentation and new product development, while the customer is deprived of the option of picking an alternative. When a market is monopolised, it frequently becomes unequal, unfair, and inefficient.

Barriers to entrance and departure are generally low in monopoly competitive industries, and businesses strive to distinguish themselves through reduction in price and advertising strategies.

Antitrust laws and regulations are enacted to prevent monopoly activity, therefore safeguarding customers, outlawing trade-restrictive behaviours, and ensuring a market stays fair and efficient.

The Sherman Antitrust Act, approved by the United States Congress in 1890, was the first law to regulate monopoly. The Sherman Antitrust Act had unanimous support from the Congress, passing the Senate by a vote of 51–1 and the House of Representatives by a vote of 242–0.

Two new pieces of antitrust law were enacted in 1914 to help safeguard customers and avoid monopoly. The Clayton Antitrust Act established additional restrictions for merges and corporate directors, as well as specific details of Sherman Antitrust Act violations.

The Federal Trade Commission Act established the Federal Trade Commission (FTC), which, along with the Antitrust Division of the United States Department of Justice, establishes standards for corporate conduct and enforces the two antitrust statutes.

Rather than just suppressing powerful firms, the regulations are meant to preserve competition and allow smaller enterprises to enter a market.

Imperfect Competition:

When a market, whether theoretical or actual, breaches the idealistic assumptions of neo - classical pure competition, imperfect competition arises. Companies in this economy trade various services and products, establish their own unique pricing, compete for share of the market, and are frequently protected by barriers to entry and exit.

Written By- Tanya C