|production capacity. And while it ships from foreign shores, the outside producer will normally face disadvantages of transportation costs and changes in currency valuation. Moreover, it may face trade barriers as soon as it becomes a successful challenger.|
This review of mainstream research is not intended to understate the value of creative theory or to overstate the mainstream achievements. Knowledge of competition's nature and effects is so limited that every promising research opportunity should be explored.
But balance is badly needed. There can be "new" ideas that do not add to knowledge, while displacing research that does. Intellectual progress occurs as new ideas are sifted skeptically and valid ones are assimilated. That new IO theory is less valuable than its authors claim is entirely natural. That its overstatements may on balance have led to the neglect of important research is entirely possible.
I have tried to suggest that the main issues in this field are little changed from earlier decades. Monopoly is still defined in part by market shares, and its various social harms can be significant. Many recent "new" concepts have long been familiar, and the "new" claims about efficiency have not yet been seriously tested. Will the mainstream field and new 10 theory continue to develop separately? Not necessarily, if theorists can repair the logical flaws and fit the ideas more precisely to the conditions of real markets. The Chicago-UCLA efficiency-school hypotheses appear to be overstated, but new research on the sources of dominance might affirm them. Contestability, a modest addition to the long-established study of free entry, also needs conceptual repair, testable forms, and thorough empirical study. Duopoly and strategic modeling may be fitted to more complex real cases if they can escape from the prison of short-run Cournot- Nash assumptions. Until then, the "insights" will tend to be formalistic, rather than verifiable.
Research is particularly needed on the nature of effective competition, including reasonable parity among rivals. Is effective competition among relative equals a specialized, unstable case? Is virtuous dominance a common fact? The answers will involve the MS-RR relationship, the economies and diseconomies of scale, the rate of decay of high market shares, the structural and other factors conducive to innovation, and similar questions of evidence, rather than pure deduction.
These old central issues still require conceptual and empirical research. Perhaps new 10 theory can help answer these questions as it enriches its models and tests its propositions.