Planet–planet collisions are a common outcome of instability in systems of transiting planets close to the star, as well as occurring during in-situ formation of such planets from embryos. Previous N-body studies of instability amongst transiting planets have assumed that collisions result in perfect merging. Here, we explore the effects of implementing a more realistic collision prescription on the outcomes of instability and in-situ formation at orbital radii of a few tenths of an au. There is a strong effect on the outcome of the growth of planetary embryos, so long as the debris thrown off in collisions is rapidly removed from the system (which happens by collisional processing to dust, and then removal by radiation forces) and embryos are small (<0.1 M⊕). If this is the case, then systems form fewer detectable (≥1 M⊕) planets than systems evolved under the assumption of perfect merging in collisions. This provides some contribution to the ‘Kepler dichotomy’: the observed overabundance of single-planet systems. The effects of changing the collision prescription on unstable mature systems of super-Earths are less pronounced. Perfect mergers only account for a minority of collision outcomes in such systems, but most collisions resulting in mass loss are grazing impacts in which only a few per cent of mass is lost. As a result, there is little impact on the final masses and multiplicities of the systems after instability when compared to systems evolved under the assumption that collisions always result in perfect merging.