Imperfect Market

Prof. Swati Basu Ghose

MSRIM,Bangalore
 Imperfect Competition

Imperfect competition includes

industries in which firms have
competitors but do not face so
much competition that they are
price takers.
The Four Types of Market Structure
Number of Firms?
Many
firms
One Type of Products?
firm Few
firms Differentiated Identical
products products

Monopoly Oligopoly Monopolistic Perfect

Competition Competition

• Tap water • Tennis balls • Novels • Wheat

• Cable TV • Crude oil • Movies • Milk
Monopolistic Competition

 Many buyers and sellers

 Products differentiated
 Relatively free entry and exit
 Each firm may have a tiny ‘monopoly’ because of
the differentiation of their product
 Firm has some control over price
 Examples – restaurants, professions –
solicitors, etc., building firms – plasterers,
plumbers, etc.
Monopolistic Competition

 Many firms selling products that

are similar but not identical.
 Characteristics of an Oligopoly
Market
 Few sellers offering similar or identical
products
 Interdependent firms
 Best off cooperating and acting like a
monopolist by producing a small quantity of
output and charging a price above marginal
cost
 There is a tension between cooperation and
self-interest.
Oligopoly – Competition
amongst the few

 Industry dominated by small number of large firms

 Many firms may make up the industry
 High barriers to entry
 Products could be highly differentiated – branding or
homogenous
 Non–price competition
 Price stability within the market - kinked demand
curve?
 Potential for collusion?
 Abnormal profits
 High degree of interdependence between firms
 Examples of Oligopolistic
structures

 Supermarkets
 Banking industry
 Chemicals
 Oil
 Medicinal drugs
 Broadcasting
 Oligopoly

 Only a few sellers, each offering a

similar or identical product to the
others.
 Market Structure
Price
Kinked Demand Curve

£5

D = elastic
Kinked D Curve
D = Inelastic

100 Quantity
 A Duopoly Example

A duopoly is an oligopoly with

only two members. It is the
simplest type of oligopoly.
Market Structure
 Duopoly:
 Industry dominated by two large
firms
 Possibility of price leader emerging –
rival will follow price leaders pricing
decisions
 High barriers to entry
 Abnormal profits likely