Dynamic Nature of Competition

In characterizing the descriptive relevance of the monopolistic competition and oligopoly models of seller behavior, it is important to recognize the dynamic nature of real-world markets. For example, as late as the mid 1980s it seemed appropriate to regard the automobile and personal computer manufacturing markets as oligopolistic in nature. Today, it seems fairer to regard each industry as monopolistically competitive. In the automobile industry, GM, Ford, and Daimler Chrysler have found Toyota, Honda, Nissan, and a host of specialized competitors to be formidable foes. Aggressive competitors like Dell, Compaq, Hewlett-Packard, and Gateway first weakened, and then obliterated, IBM's early lead in the PC business. Prices and profit margins for PCs continue to fall as improving technology continues to enhance product quality.

In many formerly oligopolistic markets, the market discipline provided by a competitive fringe of smaller domestic and foreign rivals is sufficient to limit the potential abuse of a few large competitors. In the long-distance telephone service market, for example, AT&T, MCI WorldCom, and Sprint have long dominated the industry. However, emerging competition from the so-called regional Bell operating companies (REBOCs), along with a host of smaller specialized providers, cause long-distance phone service price and service quality competition to be spirited. Similarly, the competitive fringe in wireless communications and cable TV promises to force dramatic change during the years ahead.

It is unfortunate, but public perceptions and government regulatory policy sometimes lag behind economic reality. It is essential that timely and accurate market structure information be available to form the basis for managerial investment decisions that relate to entry or exit from specific lines of business. Similarly, enlightened public policy requires timely information.

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