Champions League semi-finalists Dortmund, who take on Spain's Real Madrid on Wednesday in the first leg, won back-to-back Bundesliga titles in 2011 and 2012 before surrendering the trophy to fellow semi-finalists Bayern this season.
"Three years (to dominate in the Bundesliga) is not a lot," Watzke told Reuters in an interview before next week's much-awaited encounter with the nine-time European champions.
"German football has to decide what it wants. Does it want an evenly balanced league with a lower level? That is indeed possible - although Bayern would not be too excited about a prospect like that," said the club's CEO.
Bayern president Uli Hoeness warned this week of a growing gap, drawing parallels with Spain where Real and Barcelona have dominated for years on all levels.
"I think Uli Hoeness, who has started this discussion now, actually wants equality for the other 17 clubs," said Watzke.
"But if you want top European performers you have to have dominant clubs. It is also not accurate to say it is just like Spain. Every major European league is like that. In England it is like that as well with a handful of clubs usually dominating."
Dortmund looks set to continue playing a starring role after bouncing back from the brink of bankruptcy in 2005 to become one of Europe's most exciting and talked-about sports brands.
"Everyone should see what a bad state Dortmund were in a few years ago; no other Bundesliga club was in such a state in Germany," said Watzke, who took over in 2005 with the club's turnover at 87 million euros and a 74-million euro debt.
They are set to break the 250-million-euro barrier this year, up from 212 million in 2011/12. Sponsorship revenues alone are set to reach a record 70 million this fiscal year while some 350,000 to 400,000 trademark yellow-and-black team strips are sold per season.
"It (turnover) depends on several things, including the semi-final. A spot in the final would mean one more big financial boost for us," said the 53-year-old Watzke. "If all goes well for 2012/13 we could break the 250-million-euro mark for the first time."
"If we can achieve what we have achieved in eight years then I think every other club has more chances to do it than we had," he said.
What Dortmund fans want most, however, is a spot in this year's premier European club competition for the first time since the team won the trophy in 1997. They have already beaten Real once this season in the group stage.
"It is a much different situation than in the group stage. Maybe it was an issue of Real not having peaked yet when we played them," he said.
Dortmund booked their semi-final spot after a dramatic finale against Malaga with the Germans scoring twice in stoppage time.
"The fact is Real is the greatest and most famous club in the world. It is not that we do not want to advance or that we will not go out to win but we know we are the outsiders in this tie and we feel good in that role," Watzke said.
"Maybe it was different with Malaga where a lot was at stake. We have nothing to lose here. We have exceeded people's expectations."
Hundreds of fans camped outside club offices this week in search of the last few tickets that went on general sale, while computer systems collapsed due to high demand.
The club had surpassed Barcelona as the best-supported team in Europe with an average of some 80,000 spectators per game, Watzke said.
"Our fans are very realistic, they are extremely happy that we have managed to lift ourselves from our death bed and rise up again in just eight years," said Watzke.
"I do not think that there will even be a hint of disappointment from their side if we do not go through."
As for next season Dortmund are planning to spend "considerable" amounts to reinforce the squad with an eye firmly on the future.
"We will considerably reinforce the squad, and by that I mean considerably," he said. "It will not be 200 or 300 million but it will be considerable for Borussia.
"There are no limits for us other than one and that is not to take out any credit, not a single euro in credit to buy players."
Dortmund may also have to buy a top striker with Bundesliga leading scorer Robert Lewandowski having refused to sign an extension to his contract which runs out in 2014.
The club will hold talks with Germany international Ilkay Guendogan about a contract extension past 2015 after the season ends as Dortmund look to tie every key player into deals until 2016 and 2017.