The End of Power Read Online Free Page A

in economics is perfect competition. Under perfect competition, many different firms make perfectly interchangeable goods and customers are interested in purchasing all the products they make. There are no transaction costs, just the costs of inputs, and all firms have access to the same information. Perfect competition describes an environment in which no single firm can influence on its own the price of goods in its marketplace.
    The reality is very different, of course. Two companies, Airbus and Boeing, command the market for big long-haul planes, and a small number of additional manufacturers make smaller jets. But innumerable companies manufacture shirts or socks. It is exceedingly difficult for a new aircraftmaker to enter the market. Assemble a few tailors or seamstresses in a workshop, however, and you can produce shirts. A small new shirtmaker may be able to compete with the big names, or at least find a niche in which it can prosper. A brand-new aircraft manufacturer faces less attractive odds.
    Industries with stable and narrow structures, where incumbents hold sway and new rivals struggle, feature a great deal of market power. In plain language, this means the ability to ignore competition and still make a profit. In a perfectly competitive market, if you sell above the marginal cost (the cost of producing one additional unit, which is assumed to be the same for all producers in that industry), no one will buy, as all the other competitors will underprice you. The more market power a company possesses, the more it can set its prices without worrying about rivals. The more market power prevails among the companies in a given sector or marketplace, the more entrenched the pecking order. The difference in corporate “league tables” between a sector like personal care and hygiene—where the rankings of firms such as Procter and Gamble, Colgate-Palmolive, and other top companies have barely changed in several decades, and the personal-computer industry, where the rankings have been in utter flux—often has a great deal to do with market power.
    Market power is ultimately exclusionary, and thus anti-competitive. But even for the companies that already enjoy a position inside the citadel, protected by barriers that limit the entry of newcomers, an easy life or even survival may be far from guaranteed. Existing rivals may gain market power and turn against them, leveraging their market dominance to buy them out or drive them to bankruptcy. Collusion and exclusion are common among companies that operate in sectors or nations where open competition is stifled and market power reigns. Entrepreneurs like to extol competition, but a chief executive of a dominant firm will be far more concerned with preserving its market power.
    These considerations often usefully apply to the power dynamics among competitors in other areas—that is, to actors that are not businesses in search of maximum profit. Ahead we apply this set of ideas to illustrate what is happening to the equivalents of “market power” in military conflict, party politics, and other activities.
B ARRIERS TO E NTRY : A K EY TO M ARKET P OWER
    What are the sources of market power? In the business world, what causes certain firms to achieve dominance and remain unchallenged for a longtime? Why do some sectors give rise to monopolies, duopolies, or a small number of firms that are able to coordinate their pricing or approaches to regulation, while others remain hospitable to myriad small companies that compete furiously? Why does the configuration of firms in some industries get relatively frozen over time, while in others it changes constantly?
    For specialists in industrial organization, who seek to understand how companies gain advantages over their rivals, the factors that make it difficult for a new player to enter a given sector and compete successfully are crucial. And for our purposes, they can illuminate how power is obtained,