The Role of Potential Competition in Industrial Organization

Datos Bibliográficos

ID4029129
AutoresRichard J Gilbert (0000-0003-4068-7129, Professor of Economics, University of California, Berkeley, California., autor de correspondencia)
Año1989
Volumen3
Número3
Páginas107-127
Fecha de publicación1989-08-01
Peer ReviewedSí
Open AccessSí
TipoARTICLE
RevistaThe Journal of Economic Perspectives (JOURNAL)
Identificadores de la revistaISSN: 0895-3309 • E-ISSN: 1944-7965
EditorialAmerican Economic Association (PUBLISHER • US)
DOI10.1257/jep.3.3.107
OpenAlexW2132402524
IdiomaEN
Citas recibidas7
Referencias citadas12

Potential competition is important as a mechanism to control market power. I assess the strengths and limitations of alternative theories of potential competition by examining the available theoretical, empirical and institutional knowledge. I consider four major schools of thought: the traditional model of limit pricing, dynamic limit pricing, the theory of contestable markets, and the market efficiency model. Traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult. Dynamic limit pricing is similar, but emphasizes that markets can only be temporarily protected from entry. Contestability theory, in its pure form, asserts that potential competition is as effective as actual competition in controlling market performance. The efficient markets hypothesis, broadly interpreted, states that markets are workably competitive and that the market structure reflects differential efficiency, not strategic behavior

Economics · Empirical evidence · Industrial organization · Market power · Market structure · Microeconomics · Monopoly · Auction Theory and Applications · Consumer Market Behavior and Pricing · Merger and Competition Analysis