Entry and Market Share Mobility

Abstract

Competition is an integral part of the way in which markets function. It provides much of the impetus for market growth and development, largely by encouraging the birth and expansion of new innovative firms and the contraction or exit of less dynamic firms. Competition between firms for a place in the market often reflects a competition between different products and processes, and a high rate of turnover amongst firms can reflect bursts of innovative activity and a flowering of new product varieties. Competition can also serve as a source of discipline in markets, encouraging firms to conduct their operations efficiently, and to keep their prices down near to the level of marginal costs. In short, the degree of competitiveness in a market affects how that market responds to change, how progressive it is, and how well it serves consumers’ interests.

This chapter draws on Geroski (1991), where the interested reader can find a more extensive discussion and a much fuller set of references. I am obliged to Filippo Dell’Osso, Scott Barrett, Stefan Szymanski and John Cable for helpful comments on an earlier draft, but the usual disclaimer applies.