Monopolistic Competition, Theory of

a bourgeois theory intended to explain the effect on the market of monopoly domination of those sectors of modern capitalist mass production that have undergone basic restructuring in the course of the scientific and technological revolution. The main tenets of the theory were formulated by E. Chamberlin in the late 1920’s; among those who have worked out a number of problems in the theory of monopolistic competition are N. Kaldor, O. Morgenstern, W. Fellner, and W. Baumol.

The concepts and categories employed in the theory of monopolistic competition are based on the recognition that in the market the elements of monopoly combine with the elements of competition, and also on the knowledge that the drive for monopoly profits is the essential goal of any firm’s market strategy. The latter view links this theory with Joan Robinson’s theory of imperfect competition. But unlike Robinson, Chamberlin analyzed the activity not of commercial and industrial monopolies still surrounded by a sea of nonmonopolistic firms making average profits, but of universally dominant commercial and industrial monopoly groupings that compete with each other within particular industrial sectors and appear within most markets as both sellers and buyers. In this context, price formation is said to originate in the principle of total competitive cost, which subsumes an “ordinary” rate of profit that tends to level out within any monopolized branch of industry, regardless of what portion of productive capacity remains idle.

The cardinal defect of the theory of monopolistic competition is its treatment of superficial market processes of price and profit formation as though such processes actually create value and profit. Oversimplifying the sphere of economic distribution into an absolute, thus introducing a supposed “exchange concept,” conceals the main source of monopoly profits—the surplus value that is created by wage labor within each monopoly.

The theory of monopolistic competition embodies a basically antihistorical approach to the phenomenon under study and is generally intended to mask the sharpest of the contradictions within the capitalist mode of production—between wage labor and capital, between monopoly and nonmonolopy capital, and between the interests of the monopolies and those of society as a whole.