ABSTRACT
This chapter shows how competition theory has progressed: beginning with the neo-classical economics view of it taking place in competitive markets and based on price. The theory of competition in economics is heavily focused on price competition. Competition theory in economics began with the supposition of a perfect market where price is the only factor a would-be customer needs to know when choosing which supplier to buy from. In monopolistic competition a few rival companies struggled for business within a market. A decisive advance in understanding competition took place in 1980 with the publication of Michael Porter's Competitive Strategy. Porter's model of how companies compete had three dimensions: price; differentiation of the product or service from its competitors, and customer focus concentrating upon meeting the needs of specific groups of customers. Traditional economic theory had assumed that the only distinction between what the various market players offered was in terms of price.
