TYPES OF COMPETITION AND THE THEORY OF STRATEGY: TOWARD AN

INTEGRATIVE FRAMEWORKMarium Shahid MBA-P

TYPES OF COMPETITION AND THE THEORY OF STRATEGY: TOWARD AN INTEGRATIVE

FRAMEWORK

Abstract

Three concepts of competition, each reflecting different research traditions in microeconomics, are discussed: Industrial Organization competition . Chamberlinian competition, and Schumpeterian competition. The implications of each for normative theories of strategy are discussed, and a single framework which describes the types of competitive forces a firm is likely to face over time is suggested.

CHAMBERLINIAN COMPETITION

Definition

In Chamberlinian monopolistic competition each firm has some monopoly power, but entry drives monopoly profits to zero. The concept gets its name from Edward Chamberlin. One example where Chamberlinian monopolistic competition can be experienced is the book market.

Competition within an industry has many of the characteristics of perfect competition, as it has been described in neoclassical microeconomics.

MAIN CONCLUSIONS

Chamberlin’s monopolistic competition model analyses a whole new market structure, apart from the classic monopoly and perfect competition. It demonstrates that in a market the number of firms can be irrelevant, and perfectly competitive results can be reached. In fact, in terms of welfare  and Product differencation , monopolistic competition is desirable.

It’s worth mentioning that these results are similar to those of William Baumol’s contestable markets , since the number of firms in the market does not necessarily determine how competitive it is. Also, the results are contrary to the results found in Bertrand’s duopoly model.

SCHUMPETERIAN COMPETITION

INTRODUCTION Schumpeter assumes a perfectly competitive economy which is in stationary equilibrium. In such a stationary state ,there is perfect competitive equilibrium. no profits, no interest rates, no savings, no investments and no involuntary unemployment. This equilibrium is characterized by the term “circular flow”, continues to repeat itself every year.

Development consists in the carrying out of new combinations for which possibilities exist in the stationary state. New combinations come about in the form of INNOVATIONS