Defining Imperfect Competition
The market structures we are now going to study are called imperfectly
competitive. The word competitive emphasizes that we are not dealing with
monopoly, and the word imperfect emphasizes that we are not dealing
with perfect competition (in which firms are price takers). Let’s begin by
noting a number of characteristics that are typical of imperfectly
competitive firms. To help organize our thoughts, we classify these under
three main headings. First, firms differentiate their products. Second,
firms set their prices. Third, firms engage in non-price competition.
These breakfast cereals are different enough that each can have its own
price, but they are similar enough to be called the same product—they are
a differentiated product.
Dick Hemingway Editorial Photographs
Firms Differentiate Their Products