An imperfect market is a monopolistic market. A situation where one or few large firms dominate the market.
CAUSES OF MONOPOLY
SPECIALIZATION: An individual may be a specialist or talented in a particular production which others cannot undertake because they lack the skill or knowledge. E.g. Auto- mechanics.
PATENT RIGHT/LAWS: This is legal right given to inventors, authors and composers to be the sole producers of their trade for some period of time to enjoy the fruit of their labour.
LEGAL PROVISION: Also, this is a legal right or backing given to some establishments to be the sole producers of certain goods or services E.g. NEPA and NITEL.
MERGER: In this case, existing small firms may decide to merge together and form themselves into a large monopoly thereby wiping away competition among such goods or services.
This arises when natural resources such as oil, mineral deposits coil etc are located in some are is by nature.
FEATURES OF IMPERFECT MARKET
- Immobility of the products.
- Absence of free entry and exit
- Abound trade restrictions.
- Prevalence of preferential treatment
- Little or no competition exist among the few firms
- The products are not homogenous
ADVANTAGES OF IMPERFECT MARKET
- No risk of over-production because the monopolist is the only sole-producer.
- The monopolist makes researches, thus developing a new method of production with a low cost.
- There is reduction of prices of goods as a result of efficient organization production.
- Efficiency in the use of resources is guaranteed.
- Availability of capital as a result of the abnormal profit made by the monopolist, which can be ploughed back.
DISADVANTAGES OF IMPERFECT MARKET
- Exploitation of customers – In this case, customers pay higher prices as against the case in a perfect competitive market.
- Restriction of choice – Because of the few goods the monopolist produces, the customers are therefore restricted from making choice as they do in perfect competitive market.
- Scarcity of products – This situation arises because the monopolist tends to reduce output in order to increase price.
- There is inefficiency in service due to the absence of competition.
METHODS OF CONTROLLING MONOPOLY
- There should be de-merging of the monopolist
- Anti-thrust laws or policies should be encouraged.
- Prices should be fixed at the maximum.
- There should be less entry restrictions through regulation