Is Competition Decreasing in Our Economy?

Abstract

IT IS always useful in a paper of this to settle as quickly as possible what is going to be talked about. It would take little ingenuity on my part to turn the assigned topic into a springboard for virtually any theme I might want to expound, since the notion of competition has come to so many things. If we may judge from recent literature, this seems indeed to be a case where it is quite legitimate to make a word mean just what I choose it to mean-neither more nor less. I choose competition to what it used to in economics: a configuration of forces in a market economy that causes goods to be priced, in the normal run of events, at their costs of production, at least in the marginal sense. There are many possible configurations that can lead to competition, the only requisite being that they must operate within a market framework where economic choices are made by individuals, each acting either by himself or in voluntary association with others. Competition performs its work by making it impossible for a seller to gain anything by varying the price he charges: when he acts in his own pecuniary interests, he is forced to accept the price set by market forces. One of the unfortunate things in the development of economic theory has been the tendency to prescribe a very rigid set of conditions that must be met if the demand facing a seller is to be completely elastic. These conditions are familiar to us all: the product must be homogeneous, the sellers must be many (to the purist, infinite in number), and every seller must be an unyielding economic man. If these conditions were taken literally, they would have no application at all in the world we live in, for we could never even get so far as to find a truly homogeneous product: nature makes no leap. No two grains of wheat are identical in terms of all physical criteria that might be applied. Homogeneity exists only in the imaginary world of electrons, or perhaps now even farther away in the world of quanta of energy. The point is, of course, that we do not take the concept of homogeneity literally, and we do not have to in order to find competition in action. This raises the whole question of where we need to draw the line in identifying products, counting sellers, and specifying economic motivation. The answer is that no hard and fast rules can be laid down. In very loose terms, we can say that a seller operates in a competitive regime if his customers have access to, a wide continuum of substitute products that are or could be produced by a sizeable number of firms, and if an active minority of his customers and rival sellers are cagey.