EconAir

      Competition: Two Meanings of the Idea of Competition This essay discusses the supply side of a market. It introduces the specialized meaning of the concept of competition used in economics.   The word “competition” is used in two ways.  One way is the common usage - the strategies or processes companies use to compete with each other.  But economists use the word in another way - to describe the structure of an industry or market. Economists divide industries or markets into two groups - perfect competition and (not surprisingly) imperfect competition.  Imperfect competition is then subdivided into three types.  They are called monopoly, monopolistic competition, and oligopoly. Oligopoly is a market structure where a small number of companies account for a large percent of total sales. It is the dominant market structure for many large markets. A later essay will discuss a special version of oligopoly called bilatera...

Introduction:  From Perfect Competition to Imperfect Competition This post is about one form of imperfect competition, oligopoly. Oligopoly is a industry structure where a small number of large companies account for a large percent of industry sales. A later post describes a special type of market structure called bilateral oligopoly. It seems that running or owning a business in a perfectly-competitive industry is not much fun. Managers and owners have virtually no control over their business, the risk of failure is high, and profit margins are minimal. What could a manager do to have more control, reduce risk and increase profits? The basic idea is to pursue strategies that change competition from accepting and reacting to changes in the industry price to include other, controllable factors. Some of them are listed in Competition, Perfect and Imperfect. Another set of strategies is to grow the company through innovation – developing or adopting new technology, new produ...