Imperfect competition occurs when sellers in a market have the ability to affect the price of products or services in a given market. its demand curve It has a negative slope, since as the quantity increases, the price of the product will grow.
Perfect competition is the opposite process, and sellers have no power to move prices, so the demand curve is horizontal (whatever the quantity, the price does not change).
Types of imperfect competition
However, within imperfect competition we can find different types of market which will be characterized by the number of suppliers that exist and the degree of differentiation of the products on the market. This, in turn, will condition the degree of control over the price, leading to different types of imperfect competition:
- MONOPOLY
It is the most extreme case and it happens when there is a single bidder who has total control of the market. Normally, there are no similar products on the market, so you are alone and free when it comes to setting prices.
In practice, many countries do not allow establishing monopolies. In fact, Spain prohibits monopolies and monopolistic practices.
- Oligopoly
There are some suppliers that sell homogeneous or highly differentiated products, so they establish control over the reduced price.
- MONOPOLISTIC COMPETITION
It happens when there are many bidders but the products are differentiated, so companies still have some control over the price.
- MONOPSONIO
It occurs when there is only one plaintiff, so there is complete control over the price.