The size distribution of the firms is important from the business as well as the public point of view. If the size of the participating firms is small compared with the size of the industry, then the industry is said to be fragmented and otherwise consolidated (Jain, 2002). A form of market where the industry is dominated by small number of sellers is called oligopoly. Each oligopolist is aware of the market conditions as few sellers are present in the market. The decision of one firm can influence or are influenced by other firms.
The responses of the participants of the market are taken into account in the strategic planning process by the oligopolists (Mang, 2011, p. 1). Competition in oligopolistic market can give rise to different outcomes. An oligopoly can maximize its profits by producing at the level where marginal revenue equals marginal costs (Krčílková, n.d, p. 10). Monopolistic competition along with oligopoly constitutes the structure of imperfect competition. Firms that are imperfectly competitive offer many products. All wealth that fulfills the wants of consumers constitutes the wealth of a nation.
Therefore, the aim behind expanding wealth is broadening the choices of the consumers is terms of quality, quantity and variety. Economists are involved in researches on the idea of free market with socially optimal allocation. The notion of competition constitutes the central part of economic theory. Controversies exist among the policy makers on the way competition contributes in the process of development. One can witness contrasting thoughts about the meaning of competition in the economic history. Among the different forms of competition, perfect competition has been able to find a place as the standard model of analysis.
During the time of Adam Smith, the concept of competition was popular and viewed as independent rivalry among people. Some of the views suggest competition as a tool that will eliminate profits in the long run. But perfect competition and monopoly rules the real market conditions. Therefore, conditions imposed by imperfect competition and asymmetric information calls for inefficient competitive equilibria (Cook, 2001, p. 4). The word “competitive” means ‘not monopolies’. A market structure that fails to satisfy the postulations of perfect competition is regarded as the market of imperfect competition.
This type of market does not operate under the guidelines of perfect competition. In this type of market structure a firm has the potential to impact upon the prices (Kitchener, 2001, p.
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