The revolution of imperfect competition
In the UK, Joan Robinson’s theory of non-perfect competition arose from the criticism that Sraffa had made of Marshall’s theory in 1926. She developed her new theory assuming that every firm faces a downward sloping demand curve owing to the monopoly power given by product differentiation.
At Harvard in the same period, independently of Joan Robinson, Chamberlin came up with a similar theory, the theory of monopolistic competition, based on totally different roots, namely the literature on railroad economics. Joan Robinson and Chamberlin’s recognition of the importance of product differentiation marked the shift of their theory away from a concept of perfect competition that they themselves had worked out. According to this concept, which was far more restricted than Knight’s, perfect competition was the market structure in which a seller faces a perfectly elastic (horizontal) demand curve. This was how the boundary between perfect and imperfect competition was established, giving rise to a new discipline dealing with the latter. However, as seen above, essentially the notion of imperfect competition has always existed, although mainly informally, right from the beginning of economic thought.
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- Introduction