Definition
An imperfect competitor is a market participant, either a consumer or supplier, who has enough control over the market to influence the price of goods or services. This market power typically results from the entity’s ability to account for a large proportion of the demand or supply, thereby holding characteristics similar to monopsony or monopoly.
Examples
- Monopoly: A single firm dominating the market for electricity in a particular region can act as an imperfect competitor by setting prices higher due to lack of competition.
- Monopsony: A large corporation that employs the majority of the labor force in a small town can act as an imperfect competitor by dictating lower wages because it is the primary employer.
Frequently Asked Questions
1. What makes an imperfect competitor different from a perfect competitor?
An imperfect competitor has control over the price of goods or services due to its significant influence on market supply or demand, unlike a perfect competitor who is a price taker in a market with many small participants.
2. Can an imperfect competitor be a consumer?
Yes, an imperfect competitor can also be a large consumer, like a major retailer which can negotiate lower prices from suppliers due to bulk purchasing.
3. What are the economic implications of having an imperfect competitor in the market?
Imperfect competitors can lead to inefficiencies such as monopolistic pricing or reduced bargaining power for smaller entities, potentially resulting in less optimal market outcomes.
4. Can there be more than one imperfect competitor in a market?
Yes, but it usually leads to an oligopoly (few suppliers) or an oligopsony (few buyers), where a few participants control market conditions and prices.
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Monopoly: A market structure where a single firm controls the entire market supply of a good or service, allowing it to set prices.
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Monopsony: A market structure where a single buyer controls the market demand for a good or service, allowing it to set buying prices.
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Oligopoly: A market structure with a small number of firms dominating the market, which can lead to collusion and less competitive pricing.
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Oligopsony: A market structure with a small number of large buyers dominating the market, affecting the terms and prices upstream sellers face.
Online References
Suggested Books for Further Studies
- “The Economics of Imperfect Competition” by Joan Robinson
- “Industrial Organization: Contemporary Theory and Practice” by Lynne Pepall, Dan Richards, and George Norman
- “Microeconomic Theory: Basic Principles and Extensions” by Walter Nicholson and Christopher Snyder
Fundamentals of Imperfect Competitor: Economics Basics Quiz
### What characterizes an imperfect competitor?
- [x] The ability to influence the price of goods or services.
- [ ] An inability to influence market prices.
- [ ] Operating in a perfectly competitive market.
- [ ] Being a new market entrant.
> **Explanation:** An imperfect competitor has the ability to influence the price of goods or services due to its significant role in the market demand or supply.
### What is a common characteristic of both monopoly and monopsony as forms of imperfect competition?
- [ ] A large number of small firms competing.
- [x] Market control concentrated in a single firm or buyer.
- [ ] Government ownership.
- [ ] None of the above.
> **Explanation:** Both monopoly and monopsony feature market control concentrated in either a single supplier (monopoly) or single buyer (monopsony), which can influence prices.
### What economic condition does a single firm dominating the supply of a product in a market create?
- [ ] Monopsony
- [x] Monopoly
- [ ] Perfect competition
- [ ] Oligopsony
> **Explanation:** A single firm dominating the supply creates a monopoly, allowing it to set prices due to lack of competition.
### When a large buyer negotiates lower prices due to their purchasing power, this is an example of?
- [ ] Monopsony
- [x] Monopsony
- [ ] Monopoly
- [ ] Oligopoly
> **Explanation:** When a large buyer negotiates lower prices, it is exhibiting monopsony characteristics due to its dominant buying power.
### Which of the following is NOT a characteristic of an imperfect competitor?
- [ ] Ability to control prices
- [ ] Large percentage of market share
- [x] Inability to influence market supply and demand
- [ ] Market power
> **Explanation:** An imperfect competitor can control prices and has significant market power, influencing supply and demand.
### What type of market structure involves a few firms dominating the market?
- [ ] Monopoly
- [ ] Monopsony
- [x] Oligopoly
- [ ] Perfect competition
> **Explanation:** An oligopoly is characterized by a few firms dominating the market, which can lead to less competitive pricing.
### In an oligopsony, who holds the market power?
- [ ] The producers
- [x] The buyers
- [ ] The government
- [ ] The consumers
> **Explanation:** In an oligopsony, market power is concentrated in the hands of a few large buyers who can influence prices and terms.
### Which market structure best describes a single employer holding wage-setting power in a small town?
- [ ] Monopoly
- [x] Monopsony
- [ ] Oligopoly
- [ ] Perfect competition
> **Explanation:** In this scenario, a monopsony describes a single employer holding wage-setting power due to being the primary buyer of labor.
### Oligopoly and oligopsony are examples of?
- [x] Imperfect competition
- [ ] Perfect competition
- [ ] Monopolistic competition
- [ ] Competitive equilibrium
> **Explanation:** Oligopoly and oligopsony are forms of imperfect competition where a few large firms or buyers control the market conditions and prices.
### Market inefficiencies created by imperfect competitors can lead to?
- [x] Higher prices and reduced economic welfare
- [ ] Perfectly competitive pricing
- [ ] Uniform market conditions
- [ ] Increased market transparency
> **Explanation:** Imperfect competition can create higher prices and reduce economic welfare by limiting competition and market efficiency.
Thank you for exploring the concept of an imperfect competitor with our detailed breakdown and engaging quiz questions. Continue expanding your understanding of economics!
