[Guest]

Economics talked about several market types, such as perfect competition, monopolistic competition, oligopoly, monopoly. Perfect competition is seen as the most ideal and efficient market form, especially for consumers. But the idea of "competition" is about someone winning, as well as elimination of competitors one by one as time goes by.

My query is, in the long term, won't perfectly competitive markets (or nearly perfectly competitive markets) tend towards oligopolies and even monopolies? Two real life examples: Decades ago there were 108 US automobile companies. Then there were 44, then 8, and now only 2. Also the media in the US-it was once much more competitive but now 6 companies control 90% of US media. It seems competitive markets have a tendency to become less competitive in the long term due to political lobbying of some competitors, short term advantages to certain firms arising especially due to technological innovation, and greater economies of scale when firm merge and become larger.

Is this proposition valid?

[Oilgood]

Sorry, didn't log in before. I am the "guest" who started this thread, just so you know.

[trespam]

$this->bbcode_second_pass_quote('Oilgood', 'S')orry, didn't log in before. I am the "guest" who started this thread, just so you know.

[Oilgood]

What caveats do you speak of?

[Oilgood]

Another reason why "perfectly" competitive markets are inherently unstable in the long term: non-renewable resource depletion. A good example is none other than the oil industries. When the low hanging fruits were picked (ie easy to access plentiful oil fields), numerous small firms could afford to operate in the oil industry. But as supply dwindles, and extraction becomes more expensive, oil companies are now merging because big companies can afford to extract oil in operations which would be too expensive for smaller firms. Also, as the (non-renewable) resource becomes depleted, firms cannibalise each other to get other firm's drilling rights because this is more economical then searching for new oil.

[Whitecrab]

$this->bbcode_second_pass_quote('Anonymous', 'E')conomics talked about several market types, such as perfect competition, monopolistic competition, oligopoly, monopoly. Perfect competition is seen as the most ideal and efficient market form, especially for consumers. But the idea of "competition" is about someone winning, as well as elimination of competitors one by one as time goes by.

My query is, in the long term, won't perfectly competitive markets (or nearly perfectly competitive markets) tend towards oligopolies and even monopolies? Two real life examples: Decades ago there were 108 US automobile companies. Then there were 44, then 8, and now only 2. Also the media in the US-it was once much more competitive but now 6 companies control 90% of US media. It seems competitive markets have a tendency to become less competitive in the long term due to political lobbying of some competitors, short term advantages to certain firms arising especially due to technological innovation, and greater economies of scale when firm merge and become larger.

Is this proposition valid?

[Oilgood]

Wheat might be more like monoplistic competition, especially if brand loyalty is a factor. In Australia, producers of some types of fairly homogenous primary products tend to pool their product together and ask for a common price, kind of like a union of producers, effectively creating a monopoly or oligopoly as far as consumers are concerned. I don't think there are any real-world examples of a stable perfect competition type of market. Granted, monopolies and oligopolies can disintegrate as well, but often this is done by government legal intervention, not so much the market, since it would be to difficult for new firms to gain entry into such markets.

Take the car companies in the US for example, or the dot-com companies. In such cases, a new invention comes along, initially only supplied by one or a few producers, but entrepenuers, seeing an opportunity to make money, jump on the band wagon, the number of competitors rapidly increases, so a market similar to perfect competition emerges. But as time goes by, the better and more lucky firms gain influence and the weaker and less lucky firms go out of business or get taken over. Then you end up eventually with only one or a few firms dominating a market that was once very competitive.
My point is that "competition" is inherently about winning, and when a market competition is eventually won, the result is a monopoly or colluding oligopoly. Economics (from what I've seen) tends to look at 'perfect competition' from a static perspective too much ,and not enough from a dynamic perspective. The role of politics and favours to certain firms in the market is also left out.

By the way, although globalization has meant international competition from foreign companies to offset the monopolization of automobile markets, this does not help US automobile laborers to choose from a wider range of employers. Additionally, globalization probably only delays the monopolization effect by increasing the size of the market from the national to the global market. The end result would likely be the same given enough time and deregulation, and the remaining (few) firm(s) would be far more powerful than the oligopoly/monopoly firms in a national economy only.

[gg3]

This is my 611 th posting, a symbolic milestone since 611 is the USA phone geeks' code for Repair Service, and if we don't fix our civilization soon, we are well and truly screwed.


Here we run into the "law of increasing return."

As stated in the Gospel of Matthew, "For unto every one that hath shall be given, and he shall have abundance:  but from him that hath not shall be taken away even that which he hath."

(This quote is often cited by those who wish to justify their own depraved avarice, but I think it more appropriate to take it as a warning, since Matthew also said "it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God." Matthew and his contemporaries, and Jesus himself, had much to say about economic justice.)

As stated in systems dynamics terms, we are dealing with an inherently paradoxical positive feedback loop. As well, it is a feedback loop that has no consideration for the intrinsic values that were touched upon by the acquisition of the wealth.

For example, you have two farmers in South America who are growing crops, processing them into finished product, and taking them to market in the USA. One grows sugar cane and produces sugar, one grows coca and produces cocaine.

The producer of cocaine gets an enormously larger payment for each boat-load he brings ashore. Therefore he accumulates much greater wealth than the producer of sugar. The cocaine producer's wealth enables him to enter various fields of business and obtain far greater power in his society, than the producer of sugar. And you can see where this has gotten us.

The same case obtains with respect to other instances: one can accumulate far more wealth by behaving irresponsibly -disregarding intrinsic values and by exernalizing costs- than by behaving in a responsible manner. Yet the accumulation is rewarded almost regardless of the means taken to reach the end.

By this means also, unregulated free markets are a self-extinguishing phenomenon as competitors dwindle down toward monopoly, or more often, the oligopoly of three producers or sellers. Oligopoly is merely monopoly with three faces: a meta-stable configuration lacking the ferment and fertility of a marketplace where true competition keeps all participants thinking ahead.

This is one of the odd paradoxes of the philosophy of economics; or if you will, one of the deeper mysteries of the religion of economics: the fact that one must consciously decrease the outer limits of the freedom of the market in order to preserve its core over the long term.

The only way to prevent oligopoly and retain a truly free market over the long term, is to heed Matthew's warning about the law of increasing return. The implications of this are logically inevitable.

[Whitecrab]

I absolutely agree it is a mis-applied and overused analogy. What is a perfect competition these days - what doesn't have a brand name on it anymore? Hmm...maybe the market for things like certain kinds of repairmen, farmers market food, trivial corners of life like that. That's about all I can think of. Furniture, perhaps?