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Difference between perfect competition and imperfect competition

Based on the competition, the market structure has been classified into two broad categories: Perfectly competitive and Imperfectly competitive. The perfect competition it is not found in the real market because it is based on many hypotheses. But one imperfect competition associated with a practical approach.

The type of market structure decides the market share of an enterprise in the market. If there is a single firm, it will serve the entire market and customer demand will be met only with that firm. But if we increase the number of companies to two, the market will also be shared by the two. Likewise, if there are about 100 small businesses in the market, the market is shared by everyone in proportion.

Therefore, the structure of the market, which influences the market. So here we will describe the differences between perfect competition and imperfect competition, in economics.

Comparative chart

Basis for comparison Perfect competition Imperfect competition
Sense Perfect competition is a type of competitive market where there are numerous sellers selling homogeneous products or services to numerous buyers. Competition imperfect an economic structure, which does not satisfy the conditions of perfect competition.
Nature of the concept Theoretical Practical
Product differentiation None Light to substantial
Players Lot of Few for many
Limited entry No s
Businesses are Price Takers Price Makers

Definition of perfect competition

Perfect competition is an economic structure in which the degree of competition between the company at its peak. Given are the salient features of the perfect competition:

  • Many buyers and sellers.
  • The product offered identical in all respects.
  • Each company can come and go, according to its discretion.
  • Both parties to the transaction have complete knowledge of the product, quantity, price, market and market conditions.
  • The cost of transport and advertising zero.
  • Free from government interference.
  • The price for a uniform product across the market. Decided by demand and supply forces; no firm can influence prices, that's why firms are price buyers.
  • Every business earns a normal profit.

Example : Suppose you go to a fruit and vegetable market to buy tomatoes. There are many tomato sellers and buyers. Go to a seller and find out about the cost of 1 kg of tomatoes, the seller's answers will cost Rs. 10. So go ahead and ask other sellers. The prices of all sellers are the same for the quantity requested. This is an example of perfect competition.

Definition of imperfect competition

Competition, which does not satisfy either condition, linked to perfect competition, imperfect competition. In this type of competition, businesses can easily influence the price of a product on the market and reap excess profits.

In the real world, it is difficult to find perfect competition in any sector, but there are so many sectors like them telecommunications, cars, soaps, cosmetics, detergents, cold drinks and technology, where imperfect competition can be found . In virtue of this, imperfect competition also considered as real world competition.

There are various forms of imperfect competition, described below:

  • Monopoly : the single seller dominates the entire market.
  • Duopoly : two sellers share the whole market.
  • Oligopoly : there are few sellers acting in collusion or competition.
  • monopsony : many sellers and one buyer.
  • oligopsony : many sellers and few buyers.
  • Monopolistic competition : numerous vendors offering unique products.

Key differences between perfect competition and imperfect competition

The main points of difference between perfect competition and imperfect competition in economics are illustrated below:

  1. The competitive market, where there are a large number of buyers and sellers, and the sellers supply identical products to the buyers; known as a perfect competition. Imperfect competition occurs when one or more conditions of perfect competition are not met.
  2. Perfect competition is a hypothetical situation, which does not apply in the real world. Conversely, competition imperfect a situation found in today's world.
  3. When it comes to perfect competition, there are many players on the market, but in imperfect competition, there may be few players, depending on the type of market structure.
  4. In perfect competition, sellers manufacture or supply identical products. On the contrary, in case of imperfect competition, the products offered by the sellers can be homogeneous or differentiated.
  5. If we are talking about perfect competition, there are no barriers to entry and exit for companies that are exactly opposite in the event of imperfect competition.
  6. In perfect competition, companies are assumed not to influence the price of a product. So they are price buyers but in imperfect competition, businesses are the price managers.

Conclusion

Perfect competition is an imaginary situation that does not exist in reality, but imperfect real competition, what really exists.

Whatever the market, consider this as for example if you consider the detergent market. There are many players like Tide, Rin, Surf Excel, Ariel, Ghadi, etc. Which produce a similar product, that is, a detergent.

In the first instance, you may think this is an example of perfect competition, but not so. If you dig a little deeper, you may find that all products are different and vary in their prices. Some are low budget cleaners to capture the market for price sensitive people, while others are high budget cleaners for quality sensitive people.