Imperfect Competition vs Perfect Competition

In a perfectly competitive market, all firms produce the same product and there are many buyers and sellers. This means that no single buyer or seller can influence the market price. Therefore, the price is equal to the marginal revenue (p=MR) of the firm.

On the other hand, in an imperfectly competitive market, there is only a limited number of firms producing a similar product. This means that firms have some control over the market price, and the price is greater than the marginal revenue (p>MR).

Example of Perfect Competition

Agricultural markets are a good example of perfect competition. There are many farmers producing the same crop, and the buyers have many options to choose from. Therefore, no single farmer can influence the price of the crop. If a farmer decides to increase the price of their crop, buyers can easily switch to another farmer. This means that the price of the crop is equal to the marginal revenue of the farmer.

Example of Imperfect Competition

Telecommunications industry is a good example of imperfect competition. There are only a few companies providing telecommunication services, and they have a significant control over the market price. If one company raises the price of their service, customers may still choose to stay with them due to the high switching cost. This means that the price of the service is greater than the marginal revenue of the company.

Conclusion

In conclusion, the difference between perfect competition and imperfect competition lies in the control that the firms have over the market price. In a perfectly competitive market, firms have no control over the price, and the price is equal to the marginal revenue. In an imperfectly competitive market, firms have some control over the price, and the price is greater than the marginal revenue.