Editing Imperfect competition (section)

== Importance of imperfect competition ==
Imperfect conditions theorists believe that in the aggregate economy no market has ever, or will ever, exhibit the conditions of perfect competition.<ref name=":2">{{Cite journal |last=Bader |first=Louis |date=1935 |title=Imperfect Competition and Its Implications |url=http://www.jstor.org/stable/4291464 |journal=American Marketing Journal |volume=2 |issue=3 |pages=179–183 |doi=10.1177/002224293500200308 |jstor=4291464 }}</ref>
[[File:Monopoly Maximising.png|thumb|Monopoly firm maximises where MR = MC, but sets P > MC]]
Imperfect competition is inherent in capitalist economies. Firms are incentivised by profit, and hence undertake competitive strategies which reap the greatest revenue, by setting P > MC, at the cost of macroeconomic market efficiency.<ref name=":2" /> In the most extreme case of a monopoly, producers overcharge for their good or service, and underproduce. Thus, imperfectly competitive pricing strategies impact consumer preferences and purchases, business operation and revenue, and economic policy.

Economists are in dispute over whether economic policy should be based on assumptions of perfect competition or imperfect competition. The imperfect theorists' perspective argues that policy based on assumptions of perfect competition is not effective as no market exists in purely perfectly competitive conditions. The argument for assuming perfect competition in economic decision making prevails on the widespread use of its logic, and the present lack of substantial and consistent imperfectly competitive economic models.<ref name=":1" />

=== Case study: foreign trade ===
Utilising the assumptions of perfect competition, foreign trade policies advocate for minimal intervention. In a perfectly competitive market, subsidies are harmful, and improvements to terms-of-trade are the first point of call for import protections.<ref name=":3">{{Cite book |last=Grossman |first=Gene, M. |title=Imperfect Competition and International Trade |publisher=MIT Press |year=1997 |isbn=0-262-57093-9 |edition=4th |location=Cambridge, Massachusetts; London, England |pages=1–12}}</ref>

Conversely, imperfect competition assumptions promote intervention in the international trade market. Assuming imperfect competition allows for economic modelling of policies to contain imperfectly competitive firms' market power, or for enhancing monopoly power in situations of national interest.<ref name=":3" />

Thus, assumptions of perfect competition or imperfect competition have implications for policy choices and the efficacy of their effect, domestically and internationally.