THE CONSISTENCY OF PERFECT AND MONOPOLISTIC COMPETITION

In this paper I have suggested the formal consistency between the models of perfect and monopolistic competition. When products are differentiated only by their quality, the zero-profit equilibrium position of the perfectly competitive firm can be recast diagrammatically in a way which coincides with the traditional exposition of Chamberlinean tangencies. The illusory excess capacity theorem confuses average revenue product curves with demand schedules. These results should hardly be surprising. Indeed, if such a thing as “perfect” competition actually exists (even in theory), it must be conceivable within a model in which firms are allowed to compete in other dimensions as well as price.