What is the difference between perfect and imperfect oligopoly

Distinguish betweeen perfect oligopoly and imperfect oligopoly. Also explain the "interdependence be Distinguish between perfect and imperfect oligopoly. Explain the feature of interdependence of firms' in an oligopoly market. Explain the feature 'interdependence of firms' in an oligopoly market.

Explain the feature of firms mutually interdependent in an oligopoly market. Explain the 'interdependence between firms' characteristic of oligopoly market. OR What difference d Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.

Measure content performance. Develop and improve products. List of Partners vendors. Perfect competition is a concept in microeconomics that describes a market structure controlled entirely by market forces. If and when these forces are not met, the market is said to have imperfect competition. While no market has clearly defined perfect competition, all real-world markets are classified as imperfect. That being said, a perfect market is used as a standard by which the effectiveness and efficiency of real-world markets can be measured.

Perfect competition is an abstract concept that occurs in economics textbooks, but not in the real world. That's because it's impossible to attain in real life. Theoretically, resources would be divided among companies equally and fairly in a market with perfect competition, and no monopoly would exist. Each company would have the same industry knowledge and they would all sell the same products. There would be plenty of buyers and sellers in this market, and demand would help set prices evenly across the board.

In order for a market to have perfect competition, there must be:. The entry and exit in perfect market competition is not regulated, which means the government has no control over the players in any given industry. When it comes to their bottom lines, companies typically make just enough profit to stay in business. No one business is more profitable than the next. That's because the dynamics in the market cause them to operate on an equal playing field, thereby canceling out any possible edge one may have over another.

Since perfect competition is merely a theoretical concept, it is difficult to find a real-world example. So here we are going to describe the differences between perfect competition and imperfect competition, in economics. Basis for Comparison Perfect Competition Imperfect Competition Meaning Perfect Competition is a type of competitive market where there are numerous sellers selling homogeneous products or services to numerous buyers.

Imperfect Competition is an economic structure, which does not fulfill the conditions of the perfect competition. Perfect Competition is an economic structure where the degree of competition between the firm is at its peak. Given are the salient features of the perfect competition:. Example : Suppose you go to a vegetable market to buy tomatoes. There are many tomato vendors and buyers. You go to a vendor and inquire about the cost of 1 kg tomatoes, the vendor replies, it will cost Rs.

Then you go ahead and inquire some more vendors. The prices of all the vendors are same for the demanded quantity. Under oligopoly, firms are in a position to influence the prices. However, they try to avoid price competition for the fear of price war. They follow the policy of price rigidity. Price rigidity refers to a situation in which price tends to stay fixed irrespective of changes in demand and supply conditions.

Firms use other methods like advertising, better services to customers, etc. If a firm tries to reduce the price, the rivals will also react by reducing their prices. However, if it tries to raise the price, other firms might not do so. It will lead to loss of customers for the firm, which intended to raise the price. So, firms prefer non- price competition instead of price competition.

The main reason for few firms under oligopoly is the barriers, which prevent entry of new firms into the industry. Patents, requirement of large capital, control over crucial raw materials, etc, are some of the reasons, which prevent new firms from entering into industry. Only those firms enter into the industry which is able to cross these barriers. As a result, firms can earn abnormal profits in the long run.

Advertisement is in full swing under oligopoly, and many a times advertisement can become a matter of life-and-death. A firm under oligopoly relies more on non-price competition. Under oligopoly, there is complete interdependence among different firms. So, price and output decisions of a particular firm directly influence the competing firms.

Instead of independent price and output strategy, oligopoly firms prefer group decisions that will protect the interest of all the firms. Group Behaviour means that firms tend to behave as if they were a single firm even though individually they retain their independence. If the firms produce a homogeneous product, like cement or steel, the industry is called a pure or perfect oligopoly.

If the firms produce a differentiated product, like automobiles, the industry is called differentiated or imperfect oligopoly. Under oligopoly, the exact behaviour pattern of a producer cannot be determined with certainty.