Imperfect competition is a term used to describe a market in which the conditions which characterize perfect competition are not present. In the real world, it is virtually impossible to achieve the goal of perfect competition, in which no one force has the power to manipulate the market. As a result, most markets around the world exhibit characteristic of imperfect competition. Some examples of markets which could be considered examples of this type of market include: oligopoly, monopolistic competition, monopoly, and monopsony.
In this type of market, consumer costs for products do not approach the cost of production due to the fact that pricing is controlled to some extent by sellers and the activities of buyers. There are a number of factors which can lead to imperfect competition, and it is not uncommon to see multiple factors involved in a single market. These factors can sometimes be easy to identify and in other cases may be more obscure in nature or origin, making it difficult to determine which forces are acting upon a market.
One issue is lack of accurate information. Both buyers and sellers may conceal information with the goal of getting a better deal, and this can contribute to imperfect competition. Sellers marketing differentiated products may also contribute, as the question for consumers boils down less to ultimate cost than it does to quality and associations with the product. Another characteristic sometimes seen in this market structure is the presence of barriers which can make it difficult to enter the market, such as high start up costs or strict government regulations.
For the most part, businesses and consumers have an interest in getting ahead and staying there, whether it's on an individual deal or in the market as a whole. As a result, they can work against each other, contributing to the development of imperfect competition. It is rare to find a market in which competition is perfectly balanced and could be said to be “perfect,” not least because perfect competition may not necessarily lead to the best profits for businesses.
The idea of imperfect competition was put forward in the 20th century by Joan Robinson, a British economist. Robinson discussed the concept in 1933 and contributed a number of other works of scholarship to the world of economics. She spent a great deal of time studying developing nations and was very interested in the manifestations of Communism she saw in Russia and China. Her husband was also a noted economist.