Effective Competition

There is a widespread and deep-rooted idea in the circle of economics that perfectly competitive market is the best ideal model of market-structure. It can produce Pareto efficiency while monopoly market always accompanies with lower-efficiency. The workable competition theory, on basis of this, defines workable competition to the equilibrium of the economies of scale and competitive vigor and considers the economy of scale is the only reason that the workable competitive market is different from the perfectly competitive market. Following that the standards of workable competition leave some tracks of perfectly competition. But all current theories can't explain Chinese industry organization present situation and make it rationalization. It is necessary to theory Innovation.The paper starts with analysis of the efficiency of perfectly competitive market. Of our results, the First is that perfectly competitive market isn't the most efficient market-structure not from static or dynamic efficiency. The second is that monopoly produces some positive effects: As static efficiency to say, there are four mechanisms, namely economies of scale, economies of scope, internalization of externalities and learning effect, which optimize the allocation of resources. Monopoly advantages decrease of transaction cost. Some extent monopoly has benefits to technology innovation and human capital accumulation.Base on above consequences, the author interprets the logic of workable competition and define it to a market-structure that advantages mostly the economy sustainable development, analyzes the basic characteristics of workable competition, and establishes a model for workable competition which makes it more applicable and removes bottle-neck of its development. At last, the paper applies the model established to two industries practice to explain the workable competition theory application.