Background
The concept of a competitive fringe illustrates the dynamics in a market where a dominant firm coexists alongside smaller firms that competitively participate in the market but lack significant market power.
Historical Context
The term became more prominent with the evolution of market structure analysis in industrial organization economics, particularly as economists started to examine the behavior and impact of large firms and the residual smaller firms in various industries.
Definitions and Concepts
Competitive Fringe: The smaller firms that coexist with a dominant firm, or a small number of dominant firms, in an imperfectly competitive industry. These fringe firms do not have market power and hence take the market price as given, while the dominant firm can influence the market price by taking into account the behavior of these fringe firms.
Major Analytical Frameworks
Classical Economics
Classical economics traditionally focused on perfect markets, limited direct analysis of the competitive fringe, concentrating more on equilibrium without heterogeneous firm influence.
Neoclassical Economics
Neoclassical economics explores the equilibrium analysis where the dominant firm sets the output level strategically under the assumption that fringe firms behave as price takers.
Keynesian Economics
Analyzes demand and its impacts on total output and employment, less emphasis specifically on competitive fringes but does note the role of firm size in aggregate supply and demand.
Marxian Economics
LIkely to interpret domination as a reflection of capital concentration and control, with competitive fringes symbolizing lesser capital accumulations resisting commodification’s totality.
Institutional Economics
Examines how the evolving norms, laws, and market structures give rise to dominant firms while framing responsive smaller firms in competitive fringes within broader socio-economic parameters.
Behavioral Economics
Investigates the psychological principles behind why fringe firms settle into market-determined price-taking strategies despite recognizing dominance in competition.
Post-Keynesian Economics
Stresses oligopoly and how big businesses set strategic decisions, contrasting with smaller competitors aligning with price signals in practical implication.
Austrian Economics
Analyzes competitive fringes as part of entrepreneurial dynamism reacting to price signals and competitive pressures dictated by dominant enterprises within spontaneous orders.
Development Economics
Discusses how markets in developing economies might inherently possess competitive fringes with few dominant players, reflecting developmental disparities and focusing attention on consolidation trends.
Monetarism
Highlights focus on money supply effects and general price levels, indirect address of comp. fringes—but highlights conditions like inflation in competitive/monopolistic dynamics.
Comparative Analysis
Comparing various industries reveals consistent patterns where dominant companies’ strategic pricing decisions frame how quickly or steadily competitive fringe firms follow market prices without deviant influences.
Case Studies
- Telecommunications: Historically illustrated by incumbent firms with high coverage and fringe firms filling market niches.
- Oil Industry: Dominated by OPEC setting prices and independent smaller producers responding.
- Technology Sector: Large tech giants setting industry protocols small app developers need adhere pursuantly.
Suggested Books for Further Studies
- “Industrial Organization: A Strategic Approach” by Jeffrey Church and Roger Ware.
- “The Theory of Industrial Organization” by Jean Tirole.
- “Microeconomics of Market Failures” by Bernard Salanie.
Related Terms with Definitions
- Market Power: The ability of a single firm (or a group of firms) to influence the price of goods or services in a market.
- Oligopoly: A market structure in which a few firms dominate and have the ability to affect policies that significantly affect their competitors.
- Price Takers: Firms or individuals in the market that must accept the prevailing market prices for their products or services, having no ability to influence those prices.
