The Diversity and Dynamics of Competition: Evidence from two local schooling markets

The policy of encouraging schools to compete has been justified on the basis of raising measured levels of attainment and widening choice. In this paper we review the basis for this policy, utilising the economic analysis of markets with a small number of providers. We note that in such markets, typical of local schooling markets, increased competition may generate diverse market behaviour and identify factors likely to produce rivalry and co-operation. We then present evidence of two apparently similar local schooling markets that exhibit very different levels and types of competition. We show how an assessment of the intensity of competition in a local schooling market depends on the particular indicators chosen. We review alternative interpretations for these differences in the nature of competition and relate to recent policy initiatives.