Is There Excess Capacity Really?

  • Tamara TODOROVA Department of Economics American University in Bulgaria, Bulgaria


Excess capacity is viewed as a distinctive feature and an essential inefficiency of monopolistic competition as the large-group case of imperfect competition. Using a simple geometrical approach and studying the demand and cost curves faced by the individual firm, we find that there is little potential for excess capacity in monopolistically competitive markets, opposite to the common perception and wide coverage in the literature. We see monopolistic competition as the true type of competition in the presence of transaction costs where perfect competition is a hypothetical and ideal benchmark which cannot exist under positive transaction costs.


[1] Archibald, G.C. (1967). Monopolistic Competition and Returns to Scale. The Economic Journal, 77(306):405-412,
[2] Baumol, W.J. (1964). Monopolistic Competition and Welfare Economics. The American Economic Review, 54(3), Papers and Proceedings of the Seventy-sixth Annual Meeting of the American Economic Association: 44-52,
[3] Chamberlin, E.H. (1952). ‘Full Cost’ and Monopolistic Competition. The Economic Journal, 62(246):318-325,
[4] Chamberlin, E.H. (1947).The Theory of Monopolistic Competition. Cambridge: Harvard University Press, 5thed.
[5] Church, J.R., Ware, R. (2000).Industrial Organization: A Strategic Approach. New York: McGraw-Hill.
[6] Clark, J.M. (1939). Monopolistic Tendencies, Their Character and Consequences. Proceedings of the Academy of Political Science, 18(2), Monopoly and Competition in Industry and Labor (Jan. 1939): 2-10,
[7] Coase, R.H. (1937). The Nature of the Firm. Economica, New Series, 4(16): 386-405,
[8] Demsetz, H. (1982).Barriers to Entry. The American Economic Review, 72: 47-57,
[9] Demsetz, H. (1972). The Inconsistencies of Monopolistic Competition: a Reply. Journal of Political Economy, 80(3), Part 1 (May-June): 592-597,
[10] Demsetz, H. (1959). The Nature of Equilibrium in Monopolistic Competition. Journal of Political Economy, 67(1): 21-30,
[11] Dixit, A.K, Stiglitz, J.E. (1977). Monopolistic Competition and Optimal Product Diversity. The American Economic Review, 67(3): 297-308,
[12] Harrod, R.F. (1952). Theory of Imperfect Competition Revised, in Economic Essays, ISBN: 978-1-349-01496-5.
[13] Kerr, P., Harcourt, G. C. (2002). Joan Robinson: Critical Assessments of Leading Economists. 1, London: Routledge, ISBN: 0-415-21743-1.
[14] Klein, L.R. (1960).Some Theoretical Issues in the Measurement of Capacity. Econometrica, 28(2): 272-286,
[15] Machlup, P. (1939). Evaluation of the Practical Significance of the Theory of Monopolistic Competition. The American Economic Review, 29(2): 227-236,
[16] Nichol, A.J. (1934). The Influence of Marginal Buyers on Monopolistic Competition.The Quarterly Journal of Economics, 49(1): 121-137.
[17] Nicols, A. (1947). The Rehabilitation of Pure Competition. The Quarterly Journal of Economics, 62(1): 31-63,
[18] Nutter, G.W. (1955). The Plateau Demand Curve and Utility Theory. Journal of Political Economy, 63(6): 525-528,
[19] Paul, M.E. (1954). Notes on Excess Capacity. Oxford Economics Papers, New Series, 6(1): 33-40,
[20] Robinson, J.V. (1933). The Economics of Imperfect Competition. London: Macmillan, 2nd edition, reprinted 1969, ISBN: 0333102894.
[21] Schumpeter, J.A. (1939). Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process, New York: McGraw-Hill Book Company, 1.
[22] Stigler, G.J. (1968). The Theory of Price. New York: Macmillan, 3rd edition, ISBN: 978-0024174000.
[23] Sutton, J. (1991). Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration. Cambridge: MIT Press, ISBN: 0262693585.
How to Cite
TODOROVA, Tamara. Is There Excess Capacity Really?. Theoretical and Practical Research in the Economic Fields, [S.l.], v. 6, n. 2, p. 128-144, dec. 2015. ISSN 2068-7710. Available at: <>. Date accessed: 03 june 2023. doi: