They argue that the oligopolist faces strong competition from existing
rivals and cannot afford the more relaxed life of the monopolist.
Moreover, oligopolistic firms expect to keep a good share of the profits
they earn from their innovative activity and thus have considerable
incentive to innovate.
Everyday observation provides support for this view. Leading North
American firms that operate in highly concentrated industries, such as
Alcoa, Amazon, Apple, Canfor, Bombardier, DuPont, General Electric,
Google, Canadian National, Microsoft, Xerox, and Boeing, have been
highly innovative over many years.
This observation is not meant to suggest that only oligopolistic industries
are innovative. Much innovation is also done by very small, new firms. If
today’s small firms are successful in their innovation, they may become
tomorrow’s corporate giants. For example, Microsoft, Amazon, Apple,
and Intel, which are enormous firms today, barely existed 45 years ago;
their rise from new start-up firms to corporate giants reflects their powers
of innovation.
Oligopoly is an important market structure in modern economies because there are many
industries in which the minimum efficient scale is simply too large to support many competing
firms. The challenge to public policy is to keep oligopolists competing, rather than colluding,
and using their competitive energies to improve products and to reduce costs, rather than
merely to erect entry barriers.