This is a relatively old paper from 2011 by Maurice Stucke on a topic as straightforward as: “what is competition”.
The paper has a fairly straightforward structure. In the first section, he reviews the concept of “competition”. It concludes that while there are multiple conceptions of competition, none prevails without qualification over the others. For example, some consider competition as an idealized end-state (such as static price competition under the economic model of perfect competition), while others view competition as a dynamic process. There is no easy way to arbitrate between these views. In the second section, he explores the reasons for this diversity of conceptions of competition, and concludes that they arise from differing underlying assumptions regarding competitive processes. He tests this by relaxing the assumption of rationality of market participants and looking at its implications in section III.
For my purposes here, the most interesting section is the first one, which provides an overview of the various meanings that we give to competition, mostly unthinkingly, even when we are assuming that the goals of antitrust are obvious and always the same. Stucke points out that ideas of competition are rather vague , and that they vary across jurisdictions. For example, we talk of competition as a natural outcome of cutthroat disputes over scarce resources; as rivalry; as proximity to a neoclassical ideal according to which firms price their output at marginal cost and costs are minimized by internal efficiency; as being pure or as including elements of cooperation with competitors; as being on the merits or unfair; etc.
Arguably the most important distinction as to the types of competition is between static and dynamic competition – or, as Stucke puts it, (i) an ideal end-state (perfect competition), and (ii) a process (dynamic competition). From a static perspective, the market varies between monopoly and perfect competition, and there are degrees of imperfect competition. From a dynamic perspective, competition by its very nature is not an end-state but a complex and unpredictable dynamic process. Furthermore, competition can: (i) occur on various dimensions (such as price, quality, service, variety, innovation) ; (ii) require different levels of efficiency; (iii) take place with different levels of product differentiation, entry barriers, and transparency; and (iv) occur at different stages of the product life cycle.
Acknowledging this leads to a few important insights. For example, a common criticism of antitrust is that it focuses more on static than on dynamic competition – unsurprisingly, given how unsuitable our tools are to look far into the future. This, I would argue, likely lies at the root of our inability to take the benefits of innovation properly into account in competitive assessments, even though it would be unfair to say we have not tried to do so. I think another point that could be made is that we use the latitude that this lack of clarity provides to arrive at conclusions that suit our preferences regardless of whether they are analytically sound. On a related note, this ambiguity also allows us to fudge a fair bit, which sometimes comes in handy. The point is not to say that there is a clear solution to this – but that increased attention to this may help us better think about competition law and policy.