Sustainability of Monopolistic Competition During the Global Economic Crisis and Reindustrialization

Abstract

Until the early 1920s, the classical theory of price included two main models, perfect competition and monopoly. However, E. Chamberlin and J. Robinson introduced a new theory of monopolistic competition in 1933. At the time of global economic crisis, when only the most powerful companies survive, the model of monopolistic competition is hardly sustainable. In fact, the most widespread market model in highly developed world economies has been replaced by monopoly. Supply reduction due to the bankruptcy of many companies, combined with demand decline as a result of the austerity measures, and on the other hand growing need for higher budget inflows, lead to the price hikes in all industries. All mentioned result lead to an extreme market model – the monopoly; even in countries that were known as market economies and by its monopolistic competition. Furthermore, it is well known that employment level is lower in economies that are not competitive. That fact additionally contributes to conclusion that the sustainability of the monopolistic competition is almost impossible during the crisis, considering that we have witnessed high unemployment rates in some EU countries (e.g. Spain, Greece, Italy, Portugal and Ireland). The subject of this paper is to explore sustainability of the market model of monopolistic competition in conditions of the global economic crisis, transitional economies and the reform, under which is a public sector of the Republic of Serbia. The aim of the paper is to determine are there any opportunities for the survival of the mentioned market model in terms of re-industrialization, which is inevitable companion of globalization.