In comparing economic performance in an oligopolistic market with that in a purely competitive one, is oligopoly the best market structure for rapid technological development?

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pohnpei397 eNotes educator| Certified Educator

If these are the only two types of market structures we are considering, then oligopoly is definitely better for technological development.

In a market that is in perfect competition, there is no real way to engage in technological development.  Firms in perfect competition cannot earn any excess profits.  They are only able to charge the bare minimum price because of all the competition.  If firms cannot make any economic profit, they do not really have any money that they can put into research and development.  Since they cannot put any money into research, they will not truly be able to come up with technological developments. 

By contrast, firms in oligopoly are able to make excess profits.  They can put money into research and development.  By doing so, they are able to have money that they can use for technological development.  They also have the incentive to do so because they will be able to make profits using their innovations.

For this reason, then, an oligopoly is more likely to bring about technological developments than a market in perfect competition is.