Workable Competition in Market: Meaning and Explanation

The market structure, i.e. perfect competition which is most desirable for the economy as a whole. Perfect competition is a market structure with a large number of buyers and sellers trading homogeneous products so that each seller and buyer is a price taker and not a price maker.

But the problem with a perfectly competitive market structure is that it is not observed in reality. Some of its assumptions, such as the absence of market restriction, homogeneous products, perfect information about the market etc., are not met in practice.

Under perfect competition, each seller is so small that changing its prices it cannot affect the market as a whole. In the long run, all firms are earning zero economic profit. Even in the short run, perfect competition operates in the business passively without any market power. Therefore, perfect competition is also an unreal situation.

Thus, the instability, discontent and hypothetical nature of perfect competition led to a search for an alternative. The alternative should not deviate from the perfect competition but also provides a workable base for the economy. The workable base for the economy should target economic efficiency.

Workable Competition in the Market:

The idea of Workable Competition was first enunciated by Economist J.M. Clark in 1940. There is no exact definition of workable competition. Several authors have taken it in terms of the fulfilment of certain conditions.

According to Clark: “Competition is rivalry in selling goods, in which each selling unit normally seeks maximum net revenue, under conditions such that the price or prices each seller can charge are effectively limited by the free options of the buyer to buy from a rival seller or sellers of what we think of as ‘the same’ product, necessitating an effort by each seller to equal or exceed the attractiveness of the others offering to a sufficient number of sellers to accomplish the end in view”.

Conditions of Workable Competition:

Clark using this definition, makes the concept of workable competition explicit and gives three conditions which are:

1. A demand curve must be steep enough for the entrepreneur to cover per unit cost.
2. Active threats of the possibility of inter-commodity substitution and potential competition.
3. In the case of small numbers, sufficient non-homogeneous products cause uncertainty about the reactions of competitors.

According to Stigler, “an industry is workable competitive when,

• When there are a considerable number of firms selling closely related products in each market area.
• These firms are not in collusion and
• The long-run average cost curve for a new firm is not materially higher than that for an established firm”.

According to Edwards, “a large number of buyers and sellers, absence of collusion and coercion, free entry and the profit motives are necessary characteristics of workable competition”.

Bain has defined it as “patterns of market structure and conduct which may be expected to give rise to or associated with workable performance”.

We have seen that workable competition is a normative concept tied up with the overall objectives of the economy. Which form of market structure is relevant for the economy is a social policy issue. It is a regulatory mechanism to improve the links between market performance, market conduct and market structure in the most desirable way.

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