The airline industry has struggled with unions in adapting to deregulation over the last two decades. Competitive pressures have resulted in lower wages for industry employees, but several airlines have had to invoke bankruptcy proceedings to eliminate their union contracts and reduce payroll costs. How do these activities square with the assumption of competitive labor markets and flexible wages assumed by classical economists?

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Imperfect Competition

Imperfect competition is relatively easier to understand once people have the knowledge of perfect competition. When the five conditions of perfect competition are not made, that market structure is said to be imperfect competition.