Imperfect Competition and
Differences in tastes, desires, incomes and locations of buyers, and differences in the use
which they wish to make of commodities all indicate the need for variety and the
necessity of substituting for the concept of a “competitive ideal,” an ideal involving both
monopoly and competition.
e have so far considered two distinctly different market structures: perfect
competition, characterized by producers that cannot influence price at all
because of extreme competition; and pure monopoly, in which there is only
one producer of a product with no close substitutes and whose market is protected by
prohibitively high barriers to entry.
Needless to say, most markets are not well described
by either of those theoretical structures.
Even in the short run, producers typically
compete with several or many other producers of similar, if not identical, products.
General Motors Corporation competes with Ford Motor Company, Chrysler Corporation,
and a large number of foreign producers.
McDonald’s Corporation competes with
Burger King Corporation, Hardees, and a lot of other burger franchises, as well as with
Pizza Hut, Popeye’s Fried Chicken, and Long John Silver’s.
People’s Drug stores
compete directly with other drug chains and locally owned drugstores, and indirectly with
department and discount stores that sell the same non-drug products.
In the long run, all
these firms must compete with new companies that surmount the imperfect barriers to
entry into their markets.
In short, most companies competing in the imperfect markets
can cause producers to be more efficient in their use of resources than under pure
monopoly, although less efficient than in perfect competition.
One word of caution,
however: The study of so-called real-world market structures can be frustrating.
Although models may incorporate more or less realistic assumptions about the behavior
of real-world firms, the theories developed from them are conjectural.
At best, they
allow economists to speculate on what may happen under certain conditions.
markets are imperfect, complex phenomena that often do not lend themselves to hard-
As we have noted in our study of demand, the greater the number and variety of
substitutes for a good, the greater the elasticity of demand for that good—that is, the
more consumers will respond to a change in price.
By definition, a monopolistically
competitive market like the fast-food industry produces a number of different products,