Imperfect Markets

Perfectly competitive markets are only one type of many possible market structures. This chapter provides the discussion of the three widespread imperfect market structures (monopoly, monopolistic competition, and oligopoly) and one market structure that is less often discussed: a monopsony. In a monopoly, only one producer provides a good to a large number of consumers. It is plausible to expect that the monopolist wields market power. Monopolistic competition is the most prevalent market configuration besides heterogenous oligopolies. Under these conditions, producers offer differentiated products – and not homogenous goods – that serve the same purpose such as T-shirts, and consumers have preferences for certain products. Monopsonies play a role in the construction sector. In an oligopoly a few producers satisfy the demand of many consumers. Different to perfectly competitive markets or monopolies, these producers pay attention to the behavior of the other oligopolists.