Why Do Economists Regard Imperfect Competition As Undesirable?


Quick Answer

Imperfect competition is not necessarily viewed as undesirable, but it is viewed as different than perfect competition. Perfect competition is defined by a very strict set of rules that include having no barriers to entry and no single business having the ability to influence price.

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Full Answer

As of 2014, there are currently few, if any, models of an industry that operates as perfect competition. Industries operate instead at different levels of imperfect competition. The types of competition can include monopolies, oligopolies and monopolistic competition. Some of the things that can make an industry imperfect include the necessity for a large initial investment or the purchase of expensive capital equipment, because this limits the ability of others to fairly compete.

In many industries, a single company has the ability to set the price of goods either by themselves or with the help of a small group of collaborating businesses. This is known as a monopoly, and it controls a market on its own. An oligopoly is similar, but it includes a group of three to seven business that operate to the mutual benefit of one another. These both fall into the category of imperfect competition.

A perfectly competitive industry instead has many buyers and sellers, and no single entity has the power to affect prices positively or negatively. The industry can be entered and exited without penalty. The perfectly competitive industry does not require large amounts of capital to enter. Finally, in order to be considered perfectly competitive an industry must have price transparency.

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