Fritz Machlup · 1964
Stocking and Machlup recast competition theory as model analysis of sellers’ conduct. Rather than rely on the inherited opposition between competition and monopoly, they ask how sellers face demand, costs, rivals, product differentiation, entry threats, and opportunities for coordination. Their models are deliberately abstract: not portraits of actual markets, but devices for isolating relations that shape profit-seeking decisions. The firm is treated as a price-theory construction, not as a complete sociology of business organization. Costs and revenues are expectations relevant to choice, and marginal reasoning is defended against the simplifiedr managerial language of average-cost accounting, especially where fixed, common, or joint costs obscure incremental consequences.
Their definition of demand captures this seller-centered perspective:
A demand curve is defined as the locus of maximum prices obtainable for given quantities or of maximum quantities saleable at given prices.
Demand is therefore not merely a market fact confronting a passive firm. It is a schedule of possibilities shaped by buyers’ responses, product differentiation, selling effort, and expected rival conduct. Even many-seller markets may give individual firms some discretion; conversely, the existence of many sellers does not automatically produce the pure competition of textbook theory. The book’s central achievement is to replace broad labels with separable dimensions of rivalry.
The most important distinction is between polypoly and pliopoly. Polypoly names the presence of many current sellers; pliopoly names the prospect that more sellers can enter. This distinction lets the authors separate market structure from entry conditions.
Polypoly has been the accepted term for the status of “many sellers” in one field. Pliopoly is the term proposed to denote the probability of “more sellers” entering a field.
A market may have many incumbents yet little effective entry because of patents, scale economies, control of inputs, or strategic exclusion. Another may have few sellers yet be disciplined by potential entry. The concept of an industry is likewise pragmatic rather than metaphysical:
The concept of the industry is nothing but an expedient device for ruling out negligible or too uncertain interdependence.
Industry boundaries are thus analytical conveniences for deciding which interdependencies matter. Stocking and Machlup are less interested in assigning markets to fixed taxonomic boxes than in identifying the operative constraints in a seller situation: substitutability, buyer response, cost conditions, information, expectations, and the credibility of entry.
This diagnostic method also separates imperfect rivalry among incumbents from obstruction of outsiders.
Non-pure competition (imperfect polypoly and oligopoly) is one thing and obstructed entry (non-pliopoly) is another.
The point is especially important for policy. Product differentiation, advertising, quality variation, and localized demand may make competition imperfect without proving that entry is blocked. Conversely, formal freedom of entry may not eliminate market power if strategic or institutional barriers deter newcomers. Concentration, price rigidity, and selling costs are evidence to interpret, not verdicts by themselves.
The chapters on oligopoly deepen the argument by emphasizing conjectural interdependence. In few-seller markets, each firm’s best action depends on expected rival reactions, and those expectations often do not yield a determinate solution.
“the outcome of uncoordinated oligopoly is indeterminate—or coordination by collusion.”
This indeterminacy is not a defect added to the theory from outside; it is the theoretical condition of oligopoly. Price wars, tacit understandings, price leadership, rigidity, market sharing, and nonprice competition are alternative ways sellers manage mutual dependence. Firms may avoid price cuts not because marginal calculation is irrelevant, but because price moves can trigger retaliation and disrupt fragile expectations. Advertising, service, quality, and terms of sale become forms of rivalry that may preserve a visible price structure while shifting competition elsewhere.
Across polypoly, oligopoly, entry, coordination, and monopoly, the book’s lasting contribution is its disaggregation of “competition” into multiple, independently variable conditions. Seller competition is not a single state but a structured field of discretion, constraint, and expectation. Stocking and Machlup anticipate later industrial organization by treating markets as systems of strategic interdependence rather than static categories. Their model analysis offers both conceptual discipline and policy caution: imperfect rivalry is not always exclusion, and many sellers are not always enough.
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