Cri­te­riaPer­fect Com­pe­ti­tionImper­fect Com­pe­ti­tion
Num­ber of FirmsA large num­ber of firms in the mar­ket.Fewer firms in the mar­ket.
Mar­ket PowerNo indi­vid­ual firm has mar­ket power; each firm is a price taker.Indi­vid­ual firms have some degree of mar­ket power and can influ­ence prices.
Prod­uct Dif­fer­en­ti­a­tionProd­ucts are homoge­nous, iden­ti­cal, and indis­tin­guish­able.Prod­ucts may have dif­fer­en­ti­ated fea­tures or brand­ing.
Entry and Exit Bar­ri­ersLow bar­ri­ers to entry and exit, allow­ing new firms to enter and exist­ing firms to exit freely.Bar­ri­ers to entry and exit may exist, lim­it­ing the abil­ity of new firms to enter or exist­ing firms to exit the mar­ket.
Infor­ma­tion Trans­parencyPer­fect infor­ma­tion is avail­able to all mar­ket par­tic­i­pants.Infor­ma­tion may be incom­plete or asym­met­ri­cal, with vary­ing lev­els of trans­parency.
Price Deter­mi­na­tionPrices are deter­mined by mar­ket forces of sup­ply and demand.Prices can be influ­enced by indi­vid­ual firms based on their mar­ket power.
Mar­ket Con­cen­tra­tionMar­ket is highly frag­mented, with no dom­i­nant firms.The mar­ket can be con­cen­trated, with a few dom­i­nant firms.
Adver­tis­ing and Mar­ket­ingLim­ited adver­tis­ing and mar­ket­ing activ­i­ties as prod­ucts are undif­fer­en­ti­ated.Adver­tis­ing and mar­ket­ing play a more sig­nif­i­cant role in dif­fer­en­ti­at­ing prod­ucts and attract­ing cus­tomers.
Profit Max­i­miza­tionFirms aim to max­i­mize prof­its in the long run by pro­duc­ing at the min­i­mum effi­cient scale.Firms seek to max­i­mize prof­its within the con­straints of mar­ket power and demand con­di­tions.
Out­put Flex­i­bil­ityFirms are flex­i­ble in adjust­ing out­put lev­els based on mar­ket con­di­tions.Firms may have more lim­ited flex­i­bil­ity in adjust­ing out­put due to mar­ket power.
Price Elas­tic­ity of DemandDemand for indi­vid­ual fir­m's prod­uct is per­fectly elas­tic.Demand for indi­vid­ual fir­m's prod­uct may be elas­tic or inelas­tic, depend­ing on prod­uct dif­fer­en­ti­a­tion and sub­sti­tutes.
Mar­ket Effi­ciencyPer­fect com­pe­ti­tion tends to lead to alloca­tive and pro­duc­tive effi­ciency.Imper­fect com­pe­ti­tion can result in less effi­cient allo­ca­tion of resources.
Col­lu­sionCol­lu­sion among firms is not pos­si­ble due to the large num­ber of firms and price trans­parency.Col­lu­sion or coop­er­a­tive behav­ior among firms is more fea­si­ble, lead­ing to poten­tial antitrust con­cerns.
Gov­ern­ment Reg­u­la­tionLim­ited gov­ern­ment inter­ven­tion as the mar­ket is assumed to self-reg­u­late.Gov­ern­ment may inter­vene to pro­mote com­pe­ti­tion or reg­u­late mar­ket behav­ior.
Exam­plesAgri­cul­tural mar­kets, stock exchanges.Auto­mo­bile indus­try, soft drink indus­try.

Com­mon ques­tions

What do you under­stand by the term imper­fect com­pe­ti­tion?

Imper­fect com­pe­ti­tion exists when­ever a mar­ket, hypo­thet­i­cal or real, vio­lates the abstract tenets of neo­clas­si­cal per­fect com­pe­ti­tion. In this envi­ron­ment, com­pa­nies sell dif­fer­ent prod­ucts and ser­vices, set their own indi­vid­ual prices, fight for mar­ket share, and are often pro­tected by bar­ri­ers to entry and exit.