11.1 Imperfect Competition LO 1, 2
Most industries in the Canadian economy lie between the two
extremes of monopoly and perfect competition. Within this spectrum
of market structure we can divide Canadian industries into two broad
groups: those with a large number of relatively small firms and those
with a small number of relatively large firms. Such intermediate
market structures are called imperfectly competitive.
When measuring whether an industry has power concentrated in the
hands of only a few firms or dispersed over many, it is not sufficient
to count the firms. Instead, economists consider the concentration
ratio, which shows the fraction of total market sales controlled by a
group of the largest sellers.
Most firms operating in imperfectly competitive market structures sell
differentiated products whose characteristics they choose themselves.
Imperfectly competitive firms usually set their prices and engage in
non-price competition, including advertising and innovation.