An Imperfect Competitor is a consumer or supplier who can influence or control the price paid or received for goods or services due to their significant market presence. This entity deviates from the concept of perfect competition, wherein no single participant can influence prices. Instead, an imperfect competitor wields enough power to affect market dynamics, usually because it constitutes a substantial portion of the total demand or supply. This situation frequently involves monopoly or monopsony characteristics.
Key Characteristics of Imperfect Competitors
Monopoly and Monopsony Characteristics
Monopoly: An imperfect competitor on the supply side may function as a monopolist, holding enough control over a market to set prices for goods or services. Examples include public utilities like electricity providers.
Monopsony: On the demand side, an imperfect competitor may exhibit monopsonistic traits, dominating the market by being the primary buyer of a product or service. Examples often cited include large retailers like Walmart in the labor market for retail employees.
Examples of Imperfect Competitors
Supplier Example: De Beers
The De Beers diamond company is a classic example of an imperfect competitor. Historically, De Beers controlled a significant share of the global diamond supply, allowing it to influence and set diamond prices.
Consumer Example: Government Procurement
Government entities often act as monopsonistic consumers, especially in sectors like defense. For instance, the U.S. Department of Defense has substantial pricing power over suppliers of military equipment due to its purchasing volume.
Market Structures Involving Imperfect Competitors
Oligopoly: Market structure where a small number of large firms dominate the market. Each firm holds significant influence, though none have complete control, like in a monopoly.
Oligopsony: Where a few large buyers dominate the market. Again, these buyers wield significant influence over prices and market conditions.
FAQs
What differentiates an imperfect competitor from a perfect competitor?
Are all large companies imperfect competitors?
How does regulation affect imperfect competitors?
Related Terms
Market Power: The ability of a firm or group of firms to control price and output levels in the market.
Perfect Competition: A market structure characterized by a large number of small firms, homogeneous products, and free market entry and exit, with no single firm able to influence prices.
Economies of Scale: Cost advantages realized due to the scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread over more units of output.
Summary
An imperfect competitor is a significant player in a market with the power to influence prices due to its size and market share. These entities diverge from the principles of perfect competition and often exhibit monopoly or monopsony traits, shaping the market dynamics in their favor. Understanding how imperfect competitors function can provide insight into market structures and the broader economic landscape.
Final Thought
While imperfect competition is less frequent than perfect competition, its study reveals vital insights into how large firms and consumers can impact market outcomes, necessitating careful balance through regulations and policies.
- Samuelson, Paul A., and William D. Nordhaus. “Economics.” McGraw-Hill Education, 2010.
- Krugman, Paul, and Robin Wells. “Microeconomics.” Worth Publishers, 2018.
- Stigler, George J. “The Theory of Price.” Macmillan, 1966.
