Imperfect Market

What is an Imperfect Market?

An imperfect Market is an economic market that doesn’t meet severe standards of a hypothetically perfect competitive market. Considering that all of the real markets exist outside the perfect competition spectrum, all the real markets can be categorized as imperfect markets.

In this market type, individual sellers and buyers can influence production and prices. There is no complete information disclosure regarding prices and products. Not just that, there are even high barriers to exit and entry.

Explaining Imperfect Markets

In simple words, all of the real markets, across the world, are imperfect. Hence, the real market study is influenced by high barriers to exit and entry, competition for market share, different services and products, prices determined by price makers, incomplete or imperfect information, and a small number of sellers and buyers.

For instance, in the financial market, traders don’t have the perfect, or identical, knowledge about financial products. This means that neither traders nor the assets, in the financial market, are perfectly homogeneous. New information doesn’t get transmitted immediately, and there is a restricted speed of reactions.

When keeping the economic activity’s implications in mind, economists use the models of perfect competition. Basically, the term ‘imperfect market’ is quite misleading. Most of the people assume that an imperfect market is undesirable or flawed.

But this is not the situation always. The assortment of market imperfection is as extensive as the Range of real markets in the world; however, some could be more efficient than the others.

Imperfect Markets Types

Even if one single perfect market’s condition is not met, it can turn into an imperfect market. Each Industry has a certain type of imperfection. Basically, the Imperfect Competition can easily be found in the below-mentioned structures:

Monopoly

This one is a structure wherein only one seller is dominating the market. Products provided by this company don’t have any substitutes. Such a market has high Barriers to Entry.

Oligopoly

This market structure has several buyers, but a few sellers. These sellers may restrict others from entering. Together, they may set the prices or sometimes, only one person might take the lead to finalize the price for services and goods and the other follow.

Monopolistic

In this competition, there are several sellers who provide the same products that don’t have a substitute. Businesses are the price makers and compete with each other; however, their individual decision doesn’t impact one another.