Krugman  developed a series of mathematical equations which ”explained” the observable reality that some firms become near monopolies (Microsoft) and sustain indefinitely their dominance. Similarly, developed nations, having enjoyed a head start in economic growth,  would also be able to indefinitely “lock in” their dominant lead over the developing nations. For the Growth Economists convergence or reversion to the mean was the exception, and not the rule–and the Two Neos were themselves wrong!. For Krugman, there existed an imperfect competition which allowed near-monopolies to continue indefinitely and to compete with other near monopolies—monopolistic competition. Further evolution of Krugman’s thought led him to conclude the best, most effective remedy to monopolistic competition (GM competing with Toyota) was an involved government (P.234).

What’s the Theory Behind Innovation and the Knowledge-Based Economy | Journal of Applied Research in Economic Development Saturday, April 26, 2014 @ 1:09pm | Modified