Imperfect Market

7 Key excerpts on "Imperfect Market"

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  Intermediate Microeconomics

  Neoclassical and Factually-oriented Models

  • Lester O. Bumas(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

  these are the markets in which competitive behavior is found . Wheat growers do not take competitive actions to win over the customers of other wheat growers. Monopolists cannot acquire the customers of other producers since they are non-existent. Grocery stores and car manufacturers do compete for customers—sometimes by price and other times by non-price competition. Third and finally, the size of the market is important in determining whether a firm is an imperfect competitor, an oligopolist, or even a monopolist. The same supermarket is an imperfect competitor in a large city, an oligopolist in a small city which has only a few, and a monopolist in a town with only one.

  Imperfect Competition

  The concept of imperfect competition or monopolistic competition was independently propounded by Joan Robinson in her book, The Theory of Imperfect Competition , and Edward H. Chamberlin in his book, The Theory of Monopolistic Competition . Both books were published in 1933, the former in England and the latter in the United States. Both authors believed that their model better described the economy in general than the competitive model. Robinson and Chamberlin saw most producers as selling differentiated rather than standardized products. This gave them a measure of monopoly power. But that power is threatened by substitute products and the competition of other producers. Thus, firms generally had monopoly power threatened by competition.

  Market Characteristics

  Put in a more orderly fashion, the attributes of imperfect competition are the following: (1) There are many producers in the market. (2) There are many buyers in the market. (3) There is ease of entry into and exit out of the market. (4) The product is differentiated. (5) And firms face negative-sloping demand functions and have some price-setting power.

    The first three attributes of imperfect competition—many producers, many buyers, and easy entry and exit—are also characteristics of competitive markets. The crucial difference is the fourth element: Firms in competitive markets produce a homogeneous product but those in imperfect competition produce differentiated products. It is product differentiation which gives the imperfect competitor some control over the price of his product, some monopoly power. Control of price, of course, is a sign of the existence of a negative-sloping demand function. Finally, ease of entry implies the threat of additional competition—further limiting monopolistic power.

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  21st Century Economics: A Reference Handbook

  • Rhona C. Free(Author)
  • 2010(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  12 IMPERFECTLY COMPETITIVE PRODUCT MARKETS ELIZABETH J. JENSEN Hamilton College A ny introductory course in microeconomics spends a considerable amount of time examining perfectly competitive markets. It is important to understand this model; it serves as a benchmark for examining other industry structures and the welfare consequences of mov-ing away from perfect competition. However, it is also important to look at imperfectly competitive output markets—markets in which products are not perfectly homo-geneous or in which there are only a few sellers. While the perfectly competitive model assumes a large number of buyers and sellers, each of which is a price taker, the monopoly model assumes the opposite: one seller with complete control over price. Structurally, most markets are neither perfectly competitive nor monopolistic; they fall somewhere in between these two extremes of the competi-tive spectrum. The in-between markets are classified as either monopolistic competition or oligopolies depending on the number of firms in the market and the height of bar-riers to entry and exit. We turn first to monopoly. Monopoly A monopoly is the only producer of a good for which there are no close substitutes. This puts the monopolist in a unique position: It can raise its price without losing consumers to competitors charging a lower price. Thus, the monopolist is the industry and faces the downward-sloping market demand curve for its product. The monopolist can choose any point along that demand curve; it can set a high price and sell a relatively small quantity of output, or it can lower price and sell more output. Very few—if any—industries in the real world are pure monopolies. Examples of industries that come close include public utilities such as the local distributor of electricity or natural gas, the cable company in most communities, and, in a small isolated town, the local grocery store or gas station.

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  The Economics of Transport

  A Theoretical and Applied Perspective

  • Jonathan Cowie(Author)
  • 2009(Publication Date)
  • Routledge

    (Publisher)

  Chapter 7 Imperfect competition in transport markets

  Learning Outcomes:

  On reading this chapter, you will learn about:

  • The Imperfect Market structures of monopoly and oligopoly and their high prevalence in transport markets
  • The main sources of barriers to entry into transport markets
  • The disadvantages and advantages of Imperfect Markets in the provision of transport services
  • The tendency for competitive transport markets to veer towards Imperfect Market structures through company mergers and acquisitions
  • One perspective of the process of competition and how industry structure may change and evolve over time.

  INTRODUCTION

  In this chapter the examination of competition within transport markets is further developed by introducing the idea of the imperfectly competitive market. A simple but highly accurate definition of such a market is one that breaches one or more of the assumptions of perfect competition. What this results in is a market that may have some form of competition, but that competition tends to be flawed in some respect. Consequently, operators within the market generally do not compete as fiercely as they would do in a situation of perfect competition. When left to the free market, historically most transport industries have tended towards these types of Imperfect Market structures, thus the two main forms, monopoly and oligopoly, are introduced in this chapter. In the course of the chapter we will also see that competition can take several different forms other than being based solely upon the price charged and/or the service offered, some of which are not always obvious as competitive strategies.

  In addition to the impact and effect of externalities, the issue of imperfectly competitive markets is the other major issue facing the organisation and provision of transport services. The consequences reach far beyond the direct issues covered in this chapter and extend to other matters such as the payment of subsidy, the regulation of operations and the question of private versus public ownership and control of transport services. This chapter will outline the problems as well as the potential advantages of Imperfect Markets in the provision of transport services. In the final section, the actual process of competition is examined, which attempts to address the question as to why so many transport markets tend towards this structure even where the best intentions of regulatory authorities have been that these markets should remain competitive. There are numerous examples where reforms have been almost wholly unsuccessful in delivering a competitive transport market in the long run. One of the principal reasons for this is that the underlying market structure, and more importantly market conduct, has proved to be far stronger than any government intervention. Understanding the basics of the competitive process is thus an important part in identifying the underlying characteristics that lead to such undesired outcomes.

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  Microeconomics For Dummies

  • Lynne Pepall, Peter Antonioni, Manzur Rashid(Authors)
  • 2016(Publication Date)
  • For Dummies

    (Publisher)

  Part IV

  Delving into Markets, Market Failure, and Welfare Economics

  Find free articles on hundreds of topics at www.dummies.com .

  In this part …

  Find out why consumers love perfect competition but firms may not.

  Get to grips with what welfare means in economics.

  Discover why monopolies produce less for a higher price.

  Understand how things change when one side of a market knows more than the other.

  Passage contains an image Chapter 11

  Stepping into the Real World: Oligopoly and Imperfect Competition

  In This Chapter

  Considering the criteria for an oligopoly

  Modeling firms’ strategic behavior in oligopoly

  Differentiating products to soften competition

  Oligopoly is the name economists give to a type of market with only a few firms (it comes from the Greek word oligos meaning few). The classic example of an oligopoly is the airline industry, where a few airlines compete among themselves for customers, and the bulk of the domestic market is locked up among the four largest competitors: American, Delta, United Airlines, and Northwest. But oligopoly is visible everywhere, in industries as different as cable television services, computer and software industries, cellular phone services, and automobiles.

  One of the ways in which economists analyze oligopoly is by comparing it with other market structures. Compared to perfect competition, described in Chapter 10 , consumers don’t get as good a deal. But compared to monopoly (which has no competition, see Chapter 13

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  A Course in Public Economics

  • John Leach(Author)
  • 2003(Publication Date)
  • Cambridge University Press

    (Publisher)

  Imperfect competition results in a loss of economic efficiency even when resources are not squandered in this manner. An imperfectly competitive firm can earn profits by setting its price above marginal cost, whereas the competitive firm sets its price equal to marginal cost and earns no profits. The higher price dissuades consumers from buying the good, resulting in a movement along the production possibility fron-tier. Consequently, the condition for match efficiency is not satisfied under imperfect competition. Thus, imperfect competition could result in a loss of economic efficiency for two reasons. Resources could be wasted in the pursuit of profit, pushing the economy inside the production possibility frontier. Prices could be set too high, causing the economy to move to the wrong point on the frontier. Both of these issues are examined in the chapters that follow. 14 Monopoly The first theorem’s claim that every competitive equilibrium is Pareto optimal hinges upon the assumption that perfect competition prevails in the markets for both con-sumption goods and factors of production. Economists are much less sanguine about the efficiency of free markets when large firms dominate some of the markets. A firm’s domination of a market is most complete when it is the sole seller or sole buyer in a market, that is, when it is a monopolist or a monopsonist. This chapter examines some of the consequences of monopoly. 14.1 NATURAL MONOPOLY A production process displays increasing returns to scale if output more than doubles when the use of every input is doubled. The cost curves of a firm that produces under increasing returns to scale have two important properties 1 : • Average cost falls as output rises. • Marginal cost is everywhere below average cost. A market in which production is characterized by increasing returns to scale is said to be a natural monopoly because only one firm can survive in such a market.

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  Handbook of Labor Economics

  • Orley Ashenfelter, David Card(Authors)
  • 2010(Publication Date)
  • North Holland

    (Publisher)

  Chapter 11 Imperfect Competition in the Labor Market

  Manning Alan1 , Centre for Economic Performance, London School of Economics, Houghton Street, London WC2A 2AE

  Abstract

  It is increasingly recognized that labor markets are pervasively imperfectly competitive, that there are rents to the employment relationship for both worker and employer. This chapter considers why it is sensible to think of labor market as imperfectly competitive, reviews estimates on the size of rents, theories of and evidence on the distribution of rents between worker and employer, and the areas of labor economics where a perspective derived from imperfect competition makes a substantial difference to thought.

  Keywords

  Imperfect competition; Labor markets; Rents; Search; Matching; Monopsony

  Introduction

  In recent years, it has been increasingly recognized that many aspects of labor markets are best analyzed from the perspective that there is some degree of imperfect competition. At its most general, “imperfect competition” should be taken to mean that employer or worker or both get some rents from an existing employment relationship. If an employer gets rents, then this means that the employer will be worse off if a worker leaves i.e. the marginal product is above the wage and worker replacement is costly. If a worker gets rents then this means that the loss of the current job makes the worker worse off—an identical job cannot be found at zero cost. If labor markets are perfectly competitive then an employer can find any number of equally productive workers at the prevailing market wage so that a worker who left could be costlessly replaced by an identical worker paid the same wage. And a worker who lost their job could immediately find another identical employer paying the same wage so would not suffer losses.

  A good reason for thinking that there are rents in the employment relationship is that people think jobs are a “big deal”. For example, when asked open-ended questions about the most important events in their life over the past year, employment-related events (got job, lost job, got promoted) come second after “family” events (births, marriages, divorces and death)—see Table 1 for some British evidence on this. This evidence resonates with personal experience and with more formal evidence—for example, the studies of Jacobson et al. (1993) and Von Wachter, Manchester and Song (2009) all suggest substantial costs of job loss. And classic studies like Oi (1962)

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  Newtonian Microeconomics

  A Dynamic Extension to Neoclassical Micro Theory

  • Matti Estola(Author)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  In the former, all firms are relatively small and their number is great enough so that no firm has price-setting power on the product. On the other hand, a monopoly is a one-producer market situation where that firm can unilaterally set the price of its product. However, even though a monopoly firm can set the price of its product, the firm has no means to force consumers to buy its products. According to the number of consumers, perfect competition is a situation where none of the consumers can affect the price of the good. A one-consumer situation is called monopsony, and in this situation the only consumer can affect the price. An example of a one-consumer situation is a firm that produces weapons and the laws of the country deny the firm’s selling of its products to anyone other than the military force of the home country. A common situation is, however, that so many 200 Newtonian Microeconomics customers exist that none of them can affect the price. For this reason, we assume in the following that numerous consumers exist for the goods we are studying. All market situations that are not perfect competition are called imper- fect competition. In imperfect competition, either individual sellers (producers) or consumers can affect the prices of the products. Three forms of imperfect competition, which can be separated from the rest, are: monopoly, monopolistic competition, and oligopoly. 5.1.1 Why Do Different Market Situations Exist? A homogeneous product produced by different firms, increasing returns to scale in production, and a relatively small market (a small number of customers and/or a small turnover in the industry) together mean that one big firm can produce the aggregate production of the industry with mass production methods at smaller unit costs than various small firms could do. In this kind of a situation, one firm can conquer the market over time by price competition.

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