Definition of Imperfect Competition Market and Examples

Definition of Imperfect Competition Market and Examples – a market structure that exists in the world economy. The market exists when a perfectly competitive market does not run optimally. If a perfectly competitive market describes a condition in which buyers and sellers are present in large numbers.

So it is different from what is in the imperfect competition market structure. Where this type of market, the number of sellers or traders is less than the buyers. However, even though the number is small, sellers in an imperfect competition market are entitled to the sale of the product they are going to sell and only they can sell the product in a limited amount. This causes an imbalance in determining product prices in the market.

Understanding Imperfect Competition Market

Definition of Imperfect Competition Market and Examples

The definition of an imperfect competition market is a form of market that reflects a condition in which there is only a single seller or a few. That’s what makes buyers look so massive. In other words, it is almost the same as a single product that has no other reserves or substitutes.

As for another understanding of imperfect competition market, namely a market where the difference between the seller and the buyer is very large, but with the same or similar goods or products. With this, the prices offered by the sellers will affect the balance of the market itself. Imperfect competition market is also often referred to as a form of market that is not perfectly organized. Therefore, this type of market is considered imperfect because of defects that can cause injustice in the market.

Characteristics of an Imperfect Competition Market

To make it easier for us to distinguish between a perfectly competitive market and an imperfect competition market, we must first understand their characteristics. The following are some of the characteristics of an imperfect competition market that you need to understand:

a. Few Sellers But Many Buyers

In an imperfect competition market, there are fewer sellers than buyers. There are even some imperfectly competitive markets that are filled by only one seller. Meanwhile, in the market the number of buyers is very large. Therefore, the seller can get the maximum profit.

b. The seller has the right to determine the price of his own product

The basic difference that we can use as a benchmark to distinguish between a perfectly competitive market and an imperfect competition market is the determination of the price of the products they sell. In a perfectly competitive market, the price of the product will be determined by the market through the number of offers from sellers and consumer demand that occurs. While in imperfect competition market, the market price is determined directly by the seller himself.

c. New Sellers Will Be Difficult To Compete

In an imperfectly competitive market, new producers or sellers will find it difficult to compete with existing sellers. Because, of course, the sellers who already exist will be better known by the buyers. In addition, there is also the possibility that some old sellers are afraid of being rivaled by new sellers. So they work together to destroy the sellers who have just joined. So that there is less competition in the market.

d. No Substitute Products

In an imperfect competition market, the goods or products sold are products that are specially made and difficult to find a substitute for or products that have the same function in other markets. In other words, buyers can only and must buy these products in the market in order to obtain the desired goods.

e. Items Sold Same

Goods or products sold in imperfect competition markets are usually homogeneous. Where the products sold by producers in the imperfect competition market are the same or similar. So, you can only get one kind of item in the market.

Types of Imperfect Competition Markets

1. Monopoly Market

Monopoly market is a condition where there is only one producer or seller who can control the market and serve all consumers who come. Producers and companies that dominate the market have considerable power and are well known by the wider community and already have adequate financial conditions. In this case, it will make it more difficult for new producers who only have small capital to beat sellers who have been present in the monopoly market for a long time. This is because producers who have been known by the wider community usually will no longer promote their main brand or brand. However, they will only promote the latest products they release.

The thing that becomes a strength and can inhibit the growth of new sellers is because the old producers or sellers in the monopoly market have already established their patent rights or copyrights along with exclusive things on the products they offer. However, old producers must maintain their position as market leaders, apart from only improving quality, they must also always innovate and maintain consumer confidence. Examples of companies belonging to this type of monopoly market are state-owned companies PLN or electricity, Telkom Indonesia, and other oil and natural gas companies.

2. Oligopoly Market

The definition of a monopoly market is a market condition in which there are several sellers or producers who control the market and there are also many buyers present. Oligopoly market belongs to one type of market that has imperfect competition. This is because the product or goods sold are homogeneous even though the number of sellers is many and different. Every policy taken by sellers who dominate this market will affect the sales of those who are producers who produce similar products. Because, the profits obtained are very dependent on the competition. It is also necessary to promote their business to introduce products to the public at large and compete with other sellers.

Competition that is too tight will create a variety of product selling points. Because if there is a price decrease by only one seller, then the other sellers will also get the impact and must participate in lowering prices so that their consumers do not turn to other sellers who sell products at lower prices. Examples of oligopoly markets are the soap industry, steel industry, cigarette industry, toothpaste industry, and others.

3. Monopolistic Market

Monopolistic market is one type of market that has the same number of producers and production of goods. However, each item that is owned is different and has its own characteristics. There are no limits to the sellers in this monopolistic market. So that new producers can very easily enter the market. In a monopolistic market, the most influential factor in the success of producers is how the producers or sellers can always innovate and promote their products.

In a monopolistic market, the main strength in selling its products is from the products offered which have their characteristics both in terms of function, quality, packaging, style, and shape and others. In other words, the price factor is not too influential and is not the main one. Because, basically the price is not a factor that can help in the success of sales. An example of a monopolistic market is the packaged food industry, household furniture, beverages with various flavors, clothes or clothing, and others.

4. Monopsony Market

Monopsony market can be interpreted as a market where there are many sellers, but the number of buyers is only one. In this market, the buyer has the role of the highest power holder. So the buyer will benefit. The price of the product can be as desired by consumers or buyers.

However, even so, the seller or producer must also keep trying to get the maximum profit. The quality of the products offered by the manufacturers is basically guaranteed. Because, all traders will always try to provide the best products for buyers. So as not to lose competitiveness with other sellers.

5. Oligopsony Market

An oligopsony market is a type of market that has many sellers and only a few buyers. Prices of products or services offered in the market tend to be more stable. For the price of the product itself is usually determined by the buyer or consumer.

However, the seller will not suffer losses or be powerless in determining his own market price. Most of the products offered are raw materials or natural products. Meanwhile, the majority of consumers in the oligopsony market are traders who will reprocess the products they get from the market into finished goods.

Advantages of Imperfect Competition Pasar

At first glance, an imperfectly competitive market does seem to only benefit one party. But in fact, there are many benefits that we can get from the presence of the market system. The following are some of the advantages of imperfectly competitive markets, namely:

1. Goods Offered Have Superior Quality

As explained above, there are usually no substitutes for products or goods sold in imperfect competition markets. So that the majority of the products sold have the best quality. This is what can provide many benefits that can be obtained by society in general.

2. Get Bigger Profits

For market monopolists, they will get more profit. In fact, the benefits they get will be very easy to have.

3. Can Encourage To Find Innovative Products

With patents granted to producers as sole sellers, this can be an impetus to innovate on products or goods produced. It will certainly be a profitable thing in the future.

4. Can Grow Fast

The monopoly of an imperfectly competitive market will make those in it think more. Where they must be smarter to be able to have an important position and position in the market. This will later make a producer or seller continue to grow faster than other competitors.

Disadvantages of Imperfect Competition Pasar

Apart from the advantages of an imperfect competitive market system, there are also disadvantages that you need to understand. Because, these shortcomings can make some people will be harmed. The following are some of the disadvantages of an imperfectly competitive market, namely:

1. There is a Market Price Game

As we know that one type of imperfect market is a market that is only controlled by one party. Therefore, it is likely that there will be a price game in it. The existence of a price game, will make a fatal loss felt by consumers.

2. No Other Alternative

With only one or a few sellers and they only sell what they need, the buyers have no other alternative. Of course, they have to accept a product or item for which they have no other choice.

3. There is Price Discrimination

Not only is there a price game, but in a market system imperfect competition can also create price discrimination as well. This happens because they only think about personal gain.

4. There is Consumer Exploitation

With the number of consumers more than the number of goods or sellers, then it can create a consumer exploitation. This will greatly affect consumers who cannot act to take over to balance the existing system in the market.

When a market experiences imperfect competition. Of course, in the long term, the market will experience economic fluctuations. Although it has advantages, but the benefits will only be felt by one party. In fact, there will be many parties who feel the loss because the market is only controlled by one party. Even in an imperfectly competitive market this can lead to quite high prices.

Examples of Imperfect Competition Markets

An example of an imperfectly competitive market is the stock market. This is because stock prices can be influenced by several factors, including investors who buy shares in large quantities and other external factors. Not only that, with certain people who have faster access to information than other investors, this will make the stock market an imperfect competition.

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