With the flooding of the market with more products, negative and even sometimes illegal methods of winning customer loyalty come into play. This activity is considered imperfect competition.
Imperfect competition concept
Competition is called imperfect when individual manufacturers have the ability to control prices for manufactured products. The emergence of imperfect markets is associated with the restriction of perfect competition and the distortion of the market self-regulation mechanism.
There are several known prerequisites for imperfect competition, among which one can single out a significant share of sales in the market from certain manufacturers, heterogeneity of the product, the presence of obstacles to entry into the industry, noneconomic methods of influencing competitors to each other, imperfection of information, the ability of manufacturers to control prices own products, the presence of a monopoly (one manufacturer) or monopsony (one buyer); the influence of the state on the functioning of the market.
Each of the factors individually or all together are capable of disrupting market self-regulation. Individual enterprises acquiring bargaining power - can influence existing prices and offers. Unlike the market of perfect competition, where the volume of output does not affect the level of market prices, the market of imperfect competition is directly involved in this phenomenon, and the behavior of one company becomes significant within one or several industries.
Types of imperfect competition
There are several types of imperfect competition: monopolistic competition, monopoly, oligopoly, and monopsony. Monopoly competition is not only the most widespread, but also the most difficult to study form of sectoral structure. An industry like this may not have an accurate abstract model, compared to pure monopoly and pure competition. Specific details that characterize the development strategy and the manufacturer's products play a significant role here, and they are often almost impossible to predict. Also, the development of one or another type of competition is influenced by the strategic choice that makes an enterprise of a certain category.
Monopoly and monopsony are extreme cases of imperfect competition. Oligopoly is more common and consists in the fact that the bulk of goods are controlled by several large sellers, oligopsony is in the excess of the number of sellers over the number of buyers.
