The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Increasing Returns to Scale

  • Spyros Vassilakis
Reference work entry


The focus of this essay is the set of positive propositions that can be obtained when technology exhibits increasing returns to scale. The basic incompatibility of perfect competition and increasing returns to scale is examined separately in a section on existence of equilibria, in which we discuss how one should model economies exhibiting such technologies, i.e. essentially how to modify the Walrasian equilibrium concept in order to guarantee existence of equilibria. Welfare and purely empirical problems are not considered. Definitions: A technology exhibits increasing returns to scale if a proportionate increase in all inputs allows for a more than proportionate increase in outputs; in the single-output case, this implies a decreasing average cost curve.

This is a preview of subscription content, log in to check access.


  1. Babbage, C. 1832. On the economy of machinery and manufactures. London: C. Knight.Google Scholar
  2. Chamberlin, E. 1933. The theory of monopolistic competition. Cambridge, MA: Harvard University Press.Google Scholar
  3. Coase, R. 1937. The nature of the firm. Economica 4: 386–405.CrossRefGoogle Scholar
  4. Cournot, A. 1838. Recherches sur les principes mathématiques de la théorie des richeses. Paris: M. Rivière.Google Scholar
  5. Economides, N. 1982. Oligopoly in differentiated products with three or more competitors. Columbia University discussion paper no. 153.Google Scholar
  6. Economides, N. 1983. Symmetric equilibrium existence and optimality in differentiated products markets. Columbia University discussion paper no. 197.Google Scholar
  7. Elster, J. 1985. Making sense of Marx. Cambridge: Cambridge University Press.Google Scholar
  8. Hart, O. 1979. Monopolistic competition in a large economy with differentiated commodities. Review of Economic Studies 46: 1–30.CrossRefGoogle Scholar
  9. Hart, O. 1985. Monopolistic competition in the spirit of Chamberlin: A general model. Review of Economic Studies 52(4): 529–546.CrossRefGoogle Scholar
  10. Hart, O., and R. Guesnerie. 1985. Welfare loss due to imperfect competition: Asymptotic results for Cournot-Nash equilibria with and without free entry. International Economic Review 26(3): 525–545.CrossRefGoogle Scholar
  11. Heller, W., and D. Starret. 1976. On the nature of externalities. In Theory and measurement of economic externalities, ed. S. Lin. New York: Academic.Google Scholar
  12. Helpman, E., and P. Krugman. 1985. Market structure and foreign trade. Cambridge, MA: MIT Press.Google Scholar
  13. Kaldor, N. 1978. Further essays on economic theory. London: Duckworth.Google Scholar
  14. Kaldor, N. 1983. Keynesian economics after fifty years. In Keynes and the modern world, ed. D. Worswick and J. Trevithick. Cambridge: Cambridge University Press.Google Scholar
  15. Makowski, L. 1980. Perfect competition, the profit criterion, and the organization of economic activity. Journal of Economic Theory 22(2): 222–242.CrossRefGoogle Scholar
  16. Marshall, A. 1890. Principles of economics. London: Macmillan.Google Scholar
  17. Marshall, A. 1919. Industry and trade. London: Macmillan.Google Scholar
  18. Marx, K. 1867–1894. Capital, 3 vols. Harmondsworth: Penguin Books, 1976.Google Scholar
  19. McLellan, D. 1977. Karl Marx, selected writings. Oxford: Oxford University Press.Google Scholar
  20. Mill, J.S. 1848. Principles of political economy. London: J.W. Parker.Google Scholar
  21. Negishi, T. 1985. Economic theories in a non-Walrasian tradition. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  22. Novshek, W., and H. Sonnenschein. 1978. Cournot and Walras equilibrium. Journal of Economic Theory 19: 223–266.CrossRefGoogle Scholar
  23. Ohlin, B. 1933. Interregional and international trade. Cambridge, MA: Harvard University Press.Google Scholar
  24. Ohlin, B., et al. 1976. The international allocation of economic activity. New York: Holmes & Meier.Google Scholar
  25. Piore, M., and C. Sabel. 1984. The second industrial divide. New York: Basic Books.Google Scholar
  26. Roberts, J., and H. Sonnenschein. 1977. On the foundations of the theory of monopolistic competition. Econometrica 45: 101–113.CrossRefGoogle Scholar
  27. Robinson, E.A.G. 1931. The structure of competitive industry. Cambridge: Cambridge University Press.Google Scholar
  28. Robinson, J. 1933. The economics of imperfect competition. London: Macmillan.Google Scholar
  29. Roemer, J. 1981. Analytical foundations of Marxian economic theory. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  30. Sharkey, W.W. 1982. The theory of natural monopoly. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  31. Smith, A. 1776. In An inquiry into the nature and the courses of the wealth of nations, ed. E. Cannan. London: Methuen, 1961.Google Scholar
  32. Spence, M., and M. Porter. 1977. Vertical integration and differentiated inputs. Harvard discussion paper no. 576.Google Scholar
  33. Sraffa, P. 1926. The laws of returns under competitive conditions. Economic Journal 36: 535–550.CrossRefGoogle Scholar
  34. Stigler, G. 1941. Production and distribution theories. New York: Macmillan.Google Scholar
  35. Stigler, G. 1951. The division of labor is limited by the extent of the market. Journal of Political Economy 59: 185–193.CrossRefGoogle Scholar
  36. Symposium on Increasing Returns and Unemployment Theory. 1985. Journal of Post Keynesian Economics 7(3): 350–409.Google Scholar
  37. Vassilakis, S. 1986a. Increasing returns and strategic behavior I: The worker-employer ratio. Johns Hopkins working paper no. 168.Google Scholar
  38. Vassilakis, S. 1986b. Increasing returns and strategic behavior II: The division of labor. Johns Hopkins working paper no. 169.Google Scholar
  39. Weitzman, M. 1982. Increasing returns and the foundations of unemployment theory. Economic Journal 92: 787–804.CrossRefGoogle Scholar
  40. Young, A. 1928. Increasing returns and economic progress. Economic Journal 38: 527–542.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Spyros Vassilakis
    • 1
  1. 1.