Boeing just keeps the same model numbers for a series of aircraft, but through gradual evolution of sub-models the newest 737 MAX that exists today is an entirely different plane from the original 737-100 released in 1966.
Just look at this specification table for the different models on Wikipedia: https://en.wikipedia.org/wiki/Boeing_737#Specifications
Pretty much the only thing that's the same is that the fuselage is the same diameter. Everything else from length, height, wing span, passenger count & even how fast it cruises has changed over the years. It now has over twice the range that it did in 1966.
Secondly just because two aircraft aren't exactly the same size doesn't mean they aren't competing for the same market. As an example no airline sits down and decides they need a plane that carries exactly 150 passengers, and 180 would be out of the question.
Instead they look at the overall price, efficiency etc. Maybe they'll buy a smaller plane and run more flights per day, rather than a bigger plane with fewer flights.
You can trivially see this by looking at the multitude of airframes you can choose to fly with between pretty much any two major international airports.