Competition and Structural Change in Unconcentrated Industries

COMPETITION owes its important place in economic theory to its presumed role in bringing about an efficient allocation of resources. Most economists would share a concern about a possible absence of competition, particularly in large-scale concentrated industries which are predicted by economic theory to be marked by a lack of interfirm rivalry; this concern has stimulated considerable research into the effect of concentration on performance. Much less has been written about a possible excess of competition in industries whose structure is likely to promote intense rivalry, namely, small-scale unconcentrated industries. Even the strong proponents of state intervention to promote competition would be unwilling to assert that there is a straightforward, monotonically increasing relationship between the intensity of competition and the promotion of the public interest and might well consider that the businessman's dislike of 'excessive' competition contains much economic sense.2 This paper draws attention to the role played by competition in changing industrial structures and questions the traditional assumption of economic theory that competition can be relied upon to bring about an optimal allocation of resources by the elimination of inefficient size-classes of firm and the promotion of the efficient. Our emphasis differs from that of Weiss3 who, in his study on the factors influencing changes in concentration, was concerned with the effects of the relatively high risks associated with product differentiation. The emphasis here is less on the type than on the intensity of competition. This enquiry also raises a related question which has some importance both in regard to the measurement of economies of scale and for policies aimed at providing assistance to small firms. Many writers have attached considerable importance to the fact that small