IMPERFECT COMPETITION Meaning and
Definition
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Imperfect competition is an economic situation characterized by market conditions that do not conform to the assumptions of perfect competition. It refers to a market structure in which firms have some degree of market power and can influence the market price of their goods or services. In imperfectly competitive markets, there are barriers to entry and exit, allowing existing firms to earn above-average profits in the long run.
The most common forms of imperfect competition are monopolistic competition and oligopoly. In monopolistic competition, firms have some control over the price of their products due to product differentiation, but they face numerous competitors and relatively low barriers to entry. In oligopoly, a few large firms dominate the market and can influence the market prices and outcomes, often engaging in non-price competition, such as advertising and product differentiation.
Unlike in perfect competition, in imperfect competition, firms have some market power, which allows them to differentiate their products, engage in strategic behavior, and potentially restrict output to achieve higher prices and profits. Imperfect competition can lead to market inefficiencies and may result in less-than-optimal resource allocation, as firms have the ability to deviate from the perfectly competitive outcomes.
Overall, imperfect competition is a market structure where firms have some degree of market power due to barriers to entry, product differentiation, or oligopolistic dominance, giving them the ability to influence prices and achieve long-term profits above the competitive level.
Etymology of IMPERFECT COMPETITION
The term "imperfect competition" originated from the field of economics and was coined in the early 20th century. It is a combination of two words:
1. Imperfect: The word "imperfect" comes from the Latin word "imperfectus", which means "not perfect" or "incomplete". In this context, it signifies a departure from perfect or ideal conditions.
2. Competition: The word "competition" comes from the Latin word "competitio", which means "striving together" or "rivalry". It refers to a situation where multiple entities or individuals compete against each other for a particular goal.
Hence, "imperfect competition" describes a market condition where competition between firms is not ideal, due to factors such as barriers to entry, product differentiation, market power, or information asymmetry.
