Monopoly and Long-Run Capital Accumulation

Abstract

This paper constructs a decentralized growth model with two production sectors, one having competitive firms and the other monopolies. Since capitalized pure profits for the latter sector constitute an asset which household savings must finance, we show that imperfect competition can reduce steady-state national output through both a "static effect" on allocative efficiency and a "dynamic effect" on aggregative capital accumulation. After presenting a theoretical analysis, we generate several numerical examples. The latter suggest the "dynamic effect" of monopoly may be ten times or more as large as the "static effect" in practice.