They do not try to turn imperfectly competitive industries into perfectly
competitive ones. Nor do they try to induce such firms to produce where
marginal cost is equal to price. Not only would this be impossible, given
the pervasiveness of oligopoly and monopolistic competition, but it
would also be undesirable since much innovation and productivity
growth comes from firms with market power. Instead, as we saw in
Chapter 12 , governments use competition policy to prevent
monopolistic practices that permit firms to avoid behaving competitively
with respect to one another. The challenge of economic policy is then to
accept monopolistic and oligopolistic “imperfect” competition for the
range of choices and scale advantages they provide, while keeping firms
in active competition with one another so as to gain the economic growth
that results from their innovative practices.