Book contents
- Frontmatter
- Contents
- List of contributors
- Preface
- 1 Introduction
- Part I Underground classics
- Part II Current Perspectives
- 5 Some reflections on theories and applications of monopolistic competition
- 6 Reflections on the state of the theory of monopolistic competition
- 7 Dixit–Stiglitz, trade and growth
- Part III International trade
- Part IV Economic geography
- Part V Economic growth
- Part VI Macroeconomics
- Index
6 - Reflections on the state of the theory of monopolistic competition
Published online by Cambridge University Press: 22 September 2009
- Frontmatter
- Contents
- List of contributors
- Preface
- 1 Introduction
- Part I Underground classics
- Part II Current Perspectives
- 5 Some reflections on theories and applications of monopolistic competition
- 6 Reflections on the state of the theory of monopolistic competition
- 7 Dixit–Stiglitz, trade and growth
- Part III International trade
- Part IV Economic geography
- Part V Economic growth
- Part VI Macroeconomics
- Index
Summary
Introduction
I welcome this opportunity, almost twenty-five years after the publication of our paper on monopolistic competition, to reflect on some of the broader issues which underlie our analysis, and some of the issues which arose in the subsequent literature. It seemed abundantly clear at the time – and even more so now – that many, if not most firms in the economy face downward sloping demand curves. Indeed, in the absence of some forms of imperfections of competition, it would be hard to explain the macroeconomic problems which have beleaguered capitalism, even in small open economies; all they would need to do is to lower their exchange rate, and they would face an infinite demand for their products. How, then, could there be a Keynesian problem of insufficiency of aggregate demand? It also seemed abundantly clear that much competition took the form not of price competition, but of product differentiation. The market itself, in fact, created the imperfections of competition.
The widespread application of our model in trade theory, growth theory, and other areas of economics bears testimony to the fact that there are numerous important economic phenomena that seem inconsistent with, or at least cannot be convincingly explained by, a model with perfect competition (in which all products are produced, or at least are priced).
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- The Monopolistic Competition Revolution in Retrospect , pp. 134 - 148Publisher: Cambridge University PressPrint publication year: 2001
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