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...

We should first note that if one does not view expenditures on quality, location, or promotion as utility-generating expenditures, misallocation occurs by definition. We will follow Demsetz, however, in proposing that such expenditures, including those on promotion, do in fact generate utility....