insofar as entry is restricted either by natural barriers, such as large
minimum efficient scales for potential entrants, or by barriers created, and
successfully defended, by the existing firms or, perhaps, created by
government regulations.
Oligopoly and Innovation
As we discussed in Chapter 8 , innovation and productivity
improvements are the driving force of the economic growth that has so
greatly raised living standards over the past two centuries. They are
intimately related to Schumpeter’s concept of creative destruction, which
we first encountered in our discussion of entry barriers in Chapter 10
Examples of creative destruction abound. In the nineteenth century,
railways began to compete with wagons and barges for the carriage of
freight. In the twentieth century, trucks operating on newly constructed
highways began competing with trains. During the 1950s and 1960s,
airplanes began to compete seriously with both trucks and trains.
Cellphones have significantly weakened the monopoly power that
telephone companies had for the provision of local phone service. The
ability of consumers to easily download or stream all types of news and
entertainment has dramatically reduced the market power of firms in the
newspaper, publishing, television, and music industries.
An important defence of oligopoly is based on Schumpeter’s idea of
creative destruction. Some economists argue that oligopoly leads to more
innovation than would occur in either perfect competition or monopoly.