Imperfect competition can result from which practice?

Imperfect competition can result from which practice?

• A. Artificial restriction of competition through the use of preference policies
• B. Standardized products with open entry
• C. Free market with full information
• D. No regulation

Answer: (A)

Imperfect competition arises when some firms gain market power because entry is hindered or advantages are given to certain players. Artificial restriction of competition through preference policies does exactly this by tilting the playing field in favor of specific suppliers, granting exclusive rights, subsidies, or favorable terms that others cannot obtain easily. This reduces the number of effective competitors, eases non-price competition, and can keep prices higher than in a perfectly competitive market. In procurement, such preferences might favor domestic, minority-owned, or locally preferred suppliers, curbing rivalry and efficiency. By contrast, standardized products with open entry, a free market with full information, and no regulation all foster more competition, lowering barriers and increasing substitutes. Hence, preference-based restrictions are the practice that leads to imperfect competition.

Imperfect competition arises when some firms gain market power because entry is hindered or advantages are given to certain players. Artificial restriction of competition through preference policies does exactly this by tilting the playing field in favor of specific suppliers, granting exclusive rights, subsidies, or favorable terms that others cannot obtain easily. This reduces the number of effective competitors, eases non-price competition, and can keep prices higher than in a perfectly competitive market. In procurement, such preferences might favor domestic, minority-owned, or locally preferred suppliers, curbing rivalry and efficiency. By contrast, standardized products with open entry, a free market with full information, and no regulation all foster more competition, lowering barriers and increasing substitutes. Hence, preference-based restrictions are the practice that leads to imperfect competition.