AFTER the work of the late Professor F. Y. Edgeworth one
may doubt that anything further can be said on the theory of
competition among a small number of entrepreneurs. However,
one important feature of actual business seems until recently
to have escaped scrutiny. This is the fact that of all the pur
chasers of a commodity, some buy from one seller, some from
another, in spite of moderate differences of price. If the pur
veyor of an article gradually increases his price while his rivals
keep theirs fixed, the diminution in volume of his sales will in
general take place continuously rather than in the abrupt way
which has tacitly been assumed.
A profound difference in the nature of the stability of a
competitive situation results fromn this fact. We shall examine
it with the help of some simple mathematics. The form of the
solution will serve also to bring out a number of aspects of a
competitive situation whose importance warrants more attention
than they have received. Among these features, all illustrated
by the same simple case, we find (1) the existence of incomes not
properly belonging to any of the categories usually discussed,
but resulting from the discontinuity in the increase in the number
of sellers with the demand; (2) a socially uneconomical system of
prices, leading to needless shipment of goods and kindred devia
tions from optimum activities; (3) an undue tendency for com
petitors to imitate each other in quality of goods, in location, and
in other essential ways.
Read more here.