Abstract

Remarks about the Present State of the Theory of Competition

Economists have sometimes been bothered by the apparent contradiction implied in the model of pure or perfect competition indicated by e.g. profit-shrinking and optimal factor allocation on the one hand and total absence of dynamic progress on the other. It is beyond any doubt that competition as a dynamic process must lead (at least) to both, elimination of profits and advances in technical and economic conditions through entrepreneurial innovating activity. The problem is just to find operational criteria for such a competitive process. The concepts of workable competition have generally failed in this respect, for neither market structure nor market performance are unequivocal measures for workable (i.e. profit-eliminating and innovating) behavior or conduct. In this paper an attempt is made to develop a framework of such measures. Starting from the formal criterion of “change in market conditions” three types of competitive behavior, labelled creative, adaptive and persistent (consolidating) respectively, are employed. It is shown that each type is characterized by varying patterns of behavior and different changes in market structure and market performance. So profit-eliminating polypolization due to imitation and profit-generating monopolization due to innovations are present at the same time and can be interpreted as different aspects of the same competitive process. If those changes are absent, one may argue that active competition is lacking, probably due to restrictive practices and/or obstacles to economic growth and development. Therefore the theory of competition is inseparatedly imbedded in the analytical framework of structural change and economic progress