Imperfect Market
Candlefocus EditorMonopolies are market structures in which a single seller provides goods or services for which no close substitutes exist and barriers to entry are high. This seller, typically referred to as the monopoly, has control over the price for which their goods and services are sold. Monopolies are characterized by price discrimination, as the single seller can exploit differences between customers by charging different prices for the same product.
Oligopolies arise when a few firms dominate the market. They rarely face competition from new entrants and have some degree of pricing power. Oligopolistic firms are likely to be interdependent and need to coordinate their policies to bring about an agreement on the best strategy for their market.
Monopolistic competition is seen in markets where a large number of firms sell differentiated goods and services, similar to those of competing firms. As is the case for some oligopolies, barriers to entry are relatively low and firms are free to enter and exit the market. Customers are aware that the goods of competing firms are imperfect substitutes, and thus firms in monopolistic competition face downward pressure on their profits.
A monopsony is a market structure where there is only one buyer of a good or service, while an oligopsony is a market structure where there are a few buyers. Monopsonistic and oligopsonistic markets can lead to an efficient outcome if businesses can negotiate deals that benefit both parties. Firms in such markets may also be able to set prices and the terms of competition.
In summary, imperfect markets can deviate significantly from perfectly competitive markets in terms of the number of buyers and sellers and the power they have to set prices and terms. Monopolies, oligopolies, monopolistic competition, monopsonies, and oligopsonies are all examples of imperfect markets. Imperfect markets may not be efficient, but do provide opportunities for businesses to make a profit.