Since the market performance of industries varies along with their market characteristics, efforts have been made to devise some practical standard for identifying the sorts of market structure that engender socially satisfactory performance in a given industry. The term workable competition was coined to denote competition that may be considered as leading to a reasonable or socially acceptable approximation of ideal performance in the circumstances of a particular industry. The limits of such an approximation are of course debatable, and so the idea of workable competition must remain elusive because it is basically subjective.

Without entering into a complex theoretical discussion of the relationship between individual industry performance and overall welfare, it is plausible to suggest the following principal attributes of workable performance in an industry: (1) In the long term, selling price on average should be equal to or not significantly above average costs of production, so that profits do not appreciably exceed a normal interest return on investment. Prices should be responsive to basic reductions in costs. (2) Insofar as average costs of production are affected by the scales or capacities of plants and firms, the preponderance of industry output should be from plants and firms of the most efficient scale or with closely comparable technical efficiency. (3) The industry should not have chronic excess capacity—i.e., significant plant capacity that is persistently unused even in periods of high general economic activity. (4) The industry’s sales-promotion costs should not be substantially greater than what is needed to keep buyers informed of the availability, characteristics, and prices of products. (5) The industry should be adequately progressive in introducing more economical production techniques and improved products, thereby balancing the costs of progress with the gains.

While the first three of these attributes are easier to appraise than the others, certain generalizations are possible concerning the workability of different market structures: (1) Unregulated single-firm monopolies tend to generate unworkable market performance, mainly in the form of output restriction, prices well above costs, and consequent excess profits. They have undesirable effects on the uses to which resources are put and on income distribution. (2) Oligopolies with high seller concentration and also very high barriers to entry tend toward unworkable performance, like that of single-firm monopoly. In general, however, they do not show significant degrees of technical inefficiency resulting from inefficient plant scales or excess capacity. (3) Oligopolies with fairly high seller concentration but only moderate barriers to entry are also prone to unworkable performance of the sort just mentioned, but not to as high a degree. (4) Oligopolies with only moderate seller concentration and moderate-to-low barriers to entry tend toward workable performance both in price-cost relations and in technical efficiency, except that some of them may have recurrent chronic excess capacity due to periodic overentry by competing firms. (If cartels are legalized and their provisions are not rigorously controlled by government, the last two categories of oligopoly may have the same sort of unworkable performance as do very highly concentrated oligopolies.) (5) Industries of atomistic structure tend generally toward workable performance unless they suffer from destructive competition as described above.

In industries with significant differentiation of products among sellers—and especially in oligopolies of this sort—there is a tendency for minor but significant fractions of income to be devoted to persuasive (as distinct from informational) advertising and other sales promotion and also to more or less idle variations of product design, with the result that resources are in a sense “wasted” and costs increased.

By the criteria of workable competition, a purely rational society would presumably favour industries with moderate to low seller concentration and moderate to low barriers to entry and without extreme product differentiation—all this from the standpoint of enhancing overall material welfare. The argument that oligopolistic and atomistic industries generally need legal protection from destructive competition may be discarded on the basis of evidence. Price and other market warfare in such industries has been extremely rare in industrial countries.

Noteworthy texts include William Fellner, Competition Among the Few: Oligopoly and Similar Market Structures (1949, reissued 1965), a highly sophisticated and stimulating development of the theory of oligopoly; Joe S. Bain, Barriers to New Competition: Their Character and Consequences in Manufacturing Industries (1956, reissued 1993), a thorough introduction to the notion of barriers to entry, and Industrial Organization, 2nd ed. (1968, reissued 1987), a general textbook covering theoretical and empirical aspects of problems of monopoly and competition; Carl Kaysen and Donald F. Turner, Antitrust Policy: An Economic and Legal Analysis (1959, reissued 1965), a superior analysis and criticism of the working of American antitrust policies; Edward Chamberlin, Theory of Monopolistic Competition, 8th ed. (1962, reissued 1969), a classic and germinal contribution to the theory of markets; Joan Robinson, Economics of Imperfect Competition, 2nd ed. (1969, reissued 1976), a penetrating theoretical analysis of monopolistic and quasi-monopolistic pricing; and William G. Shepherd and Clair Wilcox, Public Policies Toward Business, 8th ed. (1991), a good general textbook including extensive treatment of policies affecting monopoly and competition.

Joseph A. Schumpeter, Capitalism, Socialism, and Democracy, 6th ed. (1987), provides an enduringly brilliant analysis of various market structures. Charles E. Lindblom, Politics and Markets: The World’s Political Economic Systems (1977), is another classic that provides an excellent examination of market structures; and Richard E. Quandt and Dusan Triska (eds.), Optimal Decisions in Markets and Planned Economies (1990), examines themes treated by Lindblom. Special topics related to market structure can be found in Don E. Waldman, Antitrust Action and Market Structure (1978); and Elhanan Helpman and Paul R. Krugman, Trade Policy and Market Structure (1989).

Excellent treatments of industrial organization include Jean Tirole, The Theory of Industrial Organization (1988), a graduate-level text; Richard Schmalensee and Robert D. Willig (eds.), Handbook of Industrial Organization, 5th ed., 2 vol. (1998), a reference book at the graduate level; and Dennis W. Carlton and Jeffrey M. Perloff, Modern Industrial Organization, 4th ed. (2005), an accessible intermediate-level text.