ABSTRACT
Whereas Chamberlin and Robinson are widely regarded as the founders of the theory of imperfect competition, Knight’s analysis of the subject remains somewhat obscure. Chamberlin and Robinson describe an unstable short-run position which is characterised by: (i) abnormal (or super-normal) profit, and (ii) a level of output which is less than that which is suggested by perfect competition. In the long-run, a largely orthodox equilibrium position exists: this position has three main characteristics. First, long-run equilibrium is described as being stable. Second, the long-run equilibrium output is usually lower than what is suggested by perfect competition. Third, abnormal (or super-normal) profit is absent in the long-run. Elimination of abnormal (or super-normal) profit usually occurs at a point before the minimum of the long-run average cost curve (LRAC) is reached. As a result, the firm operates at lower than what orthodox theory argues is an optimal level of capacity utilisation. These equilibrium characteristics are based on the central assumption of product differentiation (Harrod 1934, 463, 442). 1 These somewhat orthodox long-run outcomes are inconsistent with Knight’s examination of imperfect competition.
