11. 1 Imperfect Competition
In developed economies such as Canada, the United States, France,
Germany, and Australia, most firms fall somewhere between the two
ends of the spectrum of market structures—they are neither perfectly
competitive nor monopolistic. We refer to the market structures between
these two extremes as imperfectly competitive. There is, of course, a wide
range of firm behaviour between these two extremes. Consider, for
example, how differently your local hair salon behaves compared to your
cellphone service provider. The theories of monopolistic competition and
oligopoly have been developed to understand and explain the behaviour
of these many firms “in the middle.” Much of the difference among these
firms in the middle involves the extent of their market power.
Between the Two Extremes
Between the two extreme market structures of perfect competition and
monopoly are two common types of industries—those with many small
firms and those with a few large firms.
Industries with Many Small Firms
The majority of Canada’s output each year is produced in industries
where the firms are small relative to the size of their industry. The
perfectly competitive model does well in explaining the behaviour of
