Imperfect Market: Definition, Features, Types, Merits & Demerits

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What is Imperfect Competition or Imperfect Market?

This is a market structure that is characterized by different degrees of imperfections. The most extreme case of imperfect market structure is termed monopoly. The other intermediate cases are oligopoly, monopolistic competition, discriminating monopoly and so forth.

An imperfect market may be defined as any market structure where either the buyers or the sellers can influence the prices of goods and services because they are few in number.

Imperfect Market: Definition, Features, Types, Merits & Demerits
Imperfect Competition

Types of Imperfect Market

Imperfect markets are usually classified into the following: (1) Monopoly (2) Duopoly (3) Oligopoly (4) Monopsony

  • Monopsony

This market structure exists whenever there is one buyer for a product.

  • Duopoly

This is a market structure with only two producers or sellers of a product.

  • Oligopoly

This is a, market structure characterized by few sellers or producers.

It is categorized as either collusive oligopoly like OPEC or non-collusive in which case they make no attempt to come together as a group.

  • Monopoly

Monopoly may be defined as a market situation where there is only one producer or supplier of a particular commodity that has no substitute and who has the power to influence the price of the commodity to his own favour.

The commodity sold by a monopolist is usually differentiated.

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Causes of Monopoly

  • Natural Cause: A particular area may enjoy the monopoly of the supply of a particular mineral resource given to the area by nature.
  • Act Of Parliament: Government may through acts of parliament confer special monopoly in the production and suppiy of certain essential products or services on some organisations, example, public corporations.
  • To Protect Public Interest: As a result of this, government may embark on monopoly in the supply or production of some commodities.
  • Merging of Producers: This will make them stronger and put them in a better position to eliminate other competitors.
  • The Level of Technology: If a firm develops its techniques of production whereby it produces goods at cheaper rate, it may force other competitors out of production.
  • Advertising: If a firm succeeds through advertising it may force other competitors out of business.
  • Patent Law: This is a law that gives a fIrm special privilege to protect its new invention and it scares other competitors away.

How to Control Monopolistic Competition

  • Privatisation: This means shifting of government ownership of public corporations, industries companies etc, to rivate enterprises, thereby inviting individuals to participate in their running.
  • Reduction Of Tariffs: This will encourage importers to import more goods that will compete with the locally produced ones that enjoy monopoly.
  • Provision of substitute products.
  • DIscouraging Merging of Firms: A law shou should be made that will dIscourage merging of firms.
  • Stopping The Issuance Of Patent Law: This will encourage other people to compete with the inventor thereby, coming up with more of such inventions.
  • Removal of monopoly laws.
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Merits of Monopoly

  • It Increases Production: This increase is to the advantage of the firm and at times to members of the public.
  • Increase In Supply: Increase in production leadsto increase in the quantity of goods supplied to the market.
  • It Increases Profit: This is as a result of increase in production and suppiy, coupled with the fact that the firm has no competitors.
  • Cost Per Unit Of The Goods Will Reduce: An increase in production and supply will definitely reduce the cost per unit of goods.
  • Consumers Will Benefit: This benefit will be in form of more goods and at cheaper prices.
  • It Prevents Over-Production: This is as a result of the fact that the soIe-producer studies the market demand before embarking on production.
  • It Avoids Waste: The type of wastages experienced in a competitive market is greatly avoided in a monopolistic situation because production is tailored according to demand.
  • Leads To Invention: People carry out researches that may lead to the discovery of new products in order to enjoy patent laws.
  • Good Use Of Resources: Raw materials, equipment and factors of production are put to effective use.
  • Expansion Is Possible: This will he as a result of more profits made by the firm.
  • Creation Of Employment Opportunities: This is as a result of the expansion of the firm that enjoys monopoly.
  • Members Staff May Benefit By Way Of Bonus: More profits will lead to this and is purely internal advantage.
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Demerits of a Monopoly

  • It Increases The Cost Of Goods: The monopolist being the sole-producer, sells his goods exorbitant prices In order to make fantastic profits.
  • Consumers Bear The Brunt: The consumers are always at the mercy of the exploitative propensities of the monopolist.
  • Breeds Inefficiency: This is common in public corporations where workers show lackadaisical attitude to work and regard the corporation as nobody’s property.
  • Over-Production And Wastages: Public corporations over-produce an waste tax payers’ money.
  • Reduction In Supply: Some monopolistic deliberately reduce supply in order to cause artificial scarcity and make fantastic profits.
  • It Leads To Scarcity Of Goods: Thus is the aftermath of the hoarding activities of the monopolist.
  • Results In Inflation: The immediate result of reduction m supply and scarcity of goods is inflation.
  • Consumers Are Denied Their Traditional Right of Freedom of Choice: Monopoly forces consumers to buy whatever goods that are available without making a choice.
  • Causes Unemployment: Thus is as a result of the fact that some firms can be forced out of business by those that merged in order to enjoy the advantages of monopoly.

Monopolistic Competition: Definition & Features

A monopolistic market has one main seller but many buyers. The seller can influence either price or supply but not both.

Features of Monopolistic Competition

There is heterogenous production in a monopolist market.

  • Entry to the market is restricted.
  • The cost structure is unique to the producer.
  • There may be transport costs.
  • The demand curve for its product slopes downwards.