ABSTRACT
Why is competition desirable? The most common response to that question is that competition is needed in order to obtain an effective allocation of resources and to govern consumer interests. A third reason has been put forward during the last decade, but one that can be traced back to Adam Smith (1776; 1976), namely that rivalry is an important driving force behind innovativeness and development within firms and industries. However, the dynamics of competition may vary between different types of competition; competition in some cases can provide the pressure and dynamics that are needed for the development of new solutions and innovations, whereas in others it can hinder development within an industry. The above question can therefore be rewritten as two questions; ‘What characterises different contexts of competition?’, and ‘How does the nature of competition affect the dynamics within the industry?’.
