Chapter Twelve - FIRMS UNDER IMPERFECT COMPETITION

Abstract

This chapter focuses on firms under imperfect competition. In general, firms operating under conditions of imperfect competition have some choice about the price, whereas perfectly competitive firms do not. A firm under perfect competition takes the price in the market as given, while a firm under imperfect competition “searches” for the best price. The first is a price taker, the second a price searcher or price maker. The models of the firm most often discussed under imperfect competition include monopolistic competition, monopoly, and oligopoly. Monopolistic competition, though imperfectly competitive, comes close to the theoretical model of perfect competition. Although each firm in such an industry is its own price maker, it is so in a restricted sense. A firm may have a variety of objectives. As each firm's demand for its product is unique, and the quantity demanded varies inversely with the price, the firm has the option of charging that price which best satisfies its needs.