Advantages And Disadvantages Of Imperfect Competition

I will start by defining ‘Competition’. Competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, promotion and place.

Next we will cover the topic of Imperfect Competition with its advantages and disadvantages. Monopolistic Competition with respect to its characteristics will be the last topic to be covered in the report.

Imperfect Competition

Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods as opposed to the perfect competitive market scenario. As the name suggests, competitive markets that are imperfect in nature.

Imperfect

Lack of competition may lead to low quality and out dated goods and services.

B. Oligopoly

Advantages of Oligopoly

1.Large firms having strong hold over the market are able to make huge profits as there are few players in the market.

2.In oligopoly, many times, products of two different competitive companies are derived out of one large firm. Therefore, whichever company makes the profit, it finally ends up as a profit of the parent firm.

3.Since companies in an oligopolistic market have full control over it, they are capable of deciding prices as per their choice. Though this practice is illegal, it works in favor of these businesses.

4.Dominant market players usually make long-term profits in an oligopolistic environment. This is possible because the market does not allow an old business to increase its share. It also prevents new players from entering the market through several barriers of entry.

5.High profits generated by the companies can be used for innovation and development of new products and processes.

6.Oligopoly helps in lowering the average cost of production of goods, as firms producing similar goods can manufacture products in collaboration with each

8.Easy price comparison forces companies to set their prices competitively which is a positive point for customers.

9.Stable prices in the market helps customers plan and stabilize their expenditure, which in turn may lead to stabilization of trade cycle.

Disadvantages of Oligopoly

1.Setting of prices may be advantageous for the firms, but if done unrealistically, it may prove to be a great disadvantage for consumers.

2.Creative ideas or plans of small businesses in the oligopolistic market fail to realize because they cannot overcome the control of major market players. Their realization is only possible when one of the major player adopts it for use.

3.Small businesses in an oligopolistic market fail to establish themselves as a brand because most of the market is captured by larger firms.

4.With the presence of little competition, dominant companies may not think of improving their products.

5.Firms cannot take independent decisions and always have to consider the views of other dominant players in the market.

6.New firms cannot enter the market easily due to various barriers of