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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 ]
The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size of sellers, entry and exit barriers, nature of product, price, selling ...
Agents in a market can gain market power, allowing them to block other mutually beneficial gains from trade from occurring. This can lead to inefficiency due to imperfect competition, which can take many different forms, such as monopolies, [17] monopsonies, or monopolistic competition, if the agent does not implement perfect price discrimination.
Imperfect competition is included in the JEL classification codes as JEL: D43, L13 Articles relating to imperfect competition , situations where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market , resulting in market failure .
English: Short-run equilibrium of a monopoly, oligopoly, or a firm under monopolistic competition. The grey box illustrates abnormal profit , though the firm could just as easily be making a loss. The same diagram could equally represent the longrun equilibria of monopoly and oligopoly.
Perfect and imperfect knowledge: Oligopolies have perfect knowledge of their own cost and demand functions, but their inter-firm information may be incomplete. If firms in an oligopoly collude, information between firms then may become perfect. Buyers, however, only have imperfect knowledge as to price, [23] cost, and product quality.
This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers. It contrasts with an oligopoly, where there are many buyers but few sellers. An oligopsony is a form of imperfect competition.
Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that perfect competition is Pareto efficient while imperfect competition is not. Conversely, by Edgeworth's limit theorem, the addition of more firms to an imperfect market will cause the market to tend towards Pareto efficiency. [29]