Devastating Implications of Increasing Returns on Some Traditional Conclusions

Abstract

The presence of increasing returns with the related imperfection in competition plays havoc with many traditional results. Money may no longer be neutral; changes in nominal aggregate demand may affect either the real output or the price level. Pecuniary external effects may have efficiency implications. Market equilibria may be Pareto inefficient. All these may be true in the absence of other causation factors such as real external effects.