St. Martin's Press, 1999. Reviewed for EH.NET by Thomas E. Hall, Department of Economics, Miami University, Oxford, Ohio. Economists have long known that competition has some ugly side effects. In competitive industries, firms go out of business. The competitive process exhibits Schumpeter's creative destruction as new technologies come along which displace existing industries.
Workers lose their jobs, and firm owners lose wealth.
This is all very unpleasant for the people who are adversely affected by these changes, but in the net society is better off by reaping the benefits of economic efficiency. At least, that is what economists generally believe about the competitive outcome. Michael Perelman challenges this conventional economic orthodoxy by arguing that the economic instability caused by competition may be so large that it outweighs the beneficial effects of economic efficiency. Perelman does not argue that monopolies are the solution, instead he contends that society's welfare is enhanced by having an industrial structure that is neither too competitive, nor too concentrated. The optimal structure lies somewhere in between, where the gain in economic stability resulting from a less than perfectly competitive structure exceeds the loss to society of lower economic efficiency.