Imperfect competition

prevails in an industry whenever individual sellers have some measure of , control over the’ price of their output. Imperfect competition does not imply that a firm has absolute control over the price of its product. Take the cola market, where Coca-Cola and Pepsi together have the major share of the market, and imperfect competition clearly prevails. If the average price of other producers’ sodas in the market is 75cents, Pepsi may be able to set the price’ of a can at 70 or 80 cents and still remain a viable firm. The firm could hardly set the price at $40 or 5 cents a can because at those prices it would go out of business. We see, then, that an imperfect competitor has some but not complete discretion overwrites prices.

Moreover, the amount of discretion over price will differ from industry to industry. In some imperfectly competitive industries, the degree of monopoly power is very small. In the retail computer business, for example, more than a few percent difference in price will usually have a significant effect upon a firm’s sales. In the market for operating systems, by contrast, Microsoft has a virtual monopoly and has great discretion about the price of its Windows software.

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