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What is imperfect competition ?

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Quick Answer

Imperfect competition is market structure that exhibits some but not all of the characteristics of perfect competition. Forms of imperfect competition include monopoly, oligopoly, monopolistic competition, monopsony and oligopsony.

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Full Answer

Perfect competition is the ideal market structure. In a perfectly competitive market, all sellers have small market share and sell an identical product over which they have no ability to control price. They face no barriers to entry or exit and possess complete knowledge of their competitors' products and prices. The market for agricultural products is the closest real-world example of perfect competition.

Monopoly is a market structure in which there is only one seller. As the sole seller in the market, the monopolist can control price. Competitors are kept from the industry by high barriers to entry such as significant initial capital requirements. Public utilities are examples of monopolies; there is only one place to buy electricity and only one place to buy water. Monopoly is the opposite of perfect competition.

Oligopoly is similar to monopoly. The main difference is that there are at least two sellers. According to Investopedia US, the retail market for gasoline is oligopolistic.

Monopsony and oligopsony are similar to monopoly and oligopoly; the difference is that they are the buyers, rather than sellers of the project. A monopsonist is the sole buyer in a market, while an oligopsonist is one of at least two buyers in a market. The military industry is an example of monopsony. The cigarette industry, in which only a few firms buy tobacco, is an example of oligopsony.

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