A CONTROVERSIA SOBRE O EXCESSO DE CAPACIDADE NO MODELO DE CONCORRÊNCIA MONOPOLÍSTICA

Abstract

In 1959, Harold Demsetz started a controversy as he demonstrated the possibility of inexistence of excess capacity in the position of long run equilibrium for the firm in the model of monopolistic competition with a large number of firms in each product group. Only after 1970 some important challenges to Demsetz's result appeared, although in the form of new demonstrations of the excess capacity theorem, with no direct attack to the 1959 demonstration. The purpose of this paper is to show that the occurrence of conflicting results was a consequence of different value judgements as to what should be the ideal production level in order to measure excess capacity. So as to make such demonstration, the author summarizes the main papers of the controversy. He also presents an algebraic version of the geometric model that was used by Demsetz to explain tfie nature of equilibrium under monopolistic competition.