Is Competition Always Effective?: The Theoretical Basis of Excessive Competition

Jianhai Cao

Chinese Economy, 2008, vol. 41, issue 4, 77-104

Abstract: As the core of economics, the development of competition theory is nearly as long as the entire historical evolution of the discipline. However, generally speaking, the methods of this research context are mainly limited to idealistic, static, and equilibrium analysis. They thus do not very well explain market failure and the fierce nature of competition. Their blind belief that competition definitely promotes economic efficiency also causes them to neglect the study of excessive competition, a common phenomenon in economic life. In the present article, the author believes, from an economic perspective at least, that competition is indeed unduly intensified and that it has also led to excessive competition with losses in both economic efficiency and economic welfare. In circumstances of excessive competition, the policies made by the government to restrict potential competitors might not be reasonable. It is more important to be strict in distinguishing the following two arguments from each other: whether or not there is excessive competition and whether or not we should put restrictions on competition. On this basis we can then identify policy instruments to remove immediate causes of excessive competition.

Date: 2008
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