Imperfect competition

Imagine that you are playing a game with your friends, and you are the only one who can make the rules. You are also the only one who has a toy that everyone wants to play with. Because you are the only one who has this toy, your friends have no choice but to play by your rules if they want to play with the toy. You have what we call a "monopoly" over that toy.

In the same way, businesses in the real world can sometimes have a "monopoly" over a product or service, meaning they are the only ones who can offer it. When this happens, there is no competition, and the business can charge a high price for their product or service because consumers have no other choice.

However, in most cases, there are multiple businesses competing for customers. This is what we call "perfect competition." These businesses have to be creative and offer better quality products, lower prices, or better service in order to stand out and attract customers away from their competitors.

But sometimes, even with multiple competitors, there are still barriers to entry into the market. For example, it may be difficult or expensive for new businesses to enter the market because of regulations, high start-up costs, or a lack of resources. When this happens, we have what we call "imperfect competition."

In imperfect competition, there are still multiple businesses competing, but they have some degree of market power. This means that they can charge higher prices or offer lower-quality products without losing too many customers. Consumers may not have many alternatives to choose from, so they are forced to accept the higher prices or lower quality products.

Overall, imperfect competition can be bad for consumers because they have fewer options and businesses can charge higher prices or offer lower quality products without facing too much competition. However, it also provides an opportunity for businesses to be innovative and creative in order to compete and stand out from their competitors.