ABSTRACT
The theory of monopolistic competition develops a symmetric solution that does not require profit-sharing by permitting different firms with the same cost curves to produce products that are differentiated by consumers. The technological or "natural" monopoly argument is based on the assumption that marginal cost curves are declining in the vicinity of the industry demand curve. Reliable results have frequently been obtained simply by including the own price and quantity, and real income, as in studies of the demand for automobiles, computers, and liquor. The stabilizing force is the negative slope of the demand curve and the positive slope of the supply curve because they imply that demand exceeds supply below the equilibrium price, and supply exceeds demand above it. Certain extreme complementarities are ruled out; a system of markets would also be stable, again primarily because the excess demand in each market would be inversely related to its own price.
