Monopolistic Competition in RetrospectBrakman and Heijdra's

Abstract

“The second attempt to model monopolistic competition was far more successful than the first, essentially because the second attempt introduced a formalization that had all the relevant characteristics of monopolistic competition but was still relatively easy to handle” (pp. 1–2). The story of the first revolution is that various precursors, such as Marshall, understood that the middle ground between perfect competition and monopoly was fraught with danger, so they avoided it. In the 1930s, Edward Chamberlin and Joan Robinson independently applied the marginal revenue curve to draw the now-familiar equilibrium position for a profit-maximizing, monopolistically competitive firm. However, the first revolution never really succeeded: “Given the elegance of the monopolistic competition model, it is surprising to see how little influence it had on economic theory” (p. 10). Several of the papers make reference to the failed 1930s monopolistic competition revolution without going into detail. It seems that it is an agreed upon fact.