Undesired Excess Capacity and Equilibrium in an Advanced Market Economy

Abstract

In this paper I attempt to give theoretical foundation to the concept of undesired excess capacity that I define as an unwilling , persistent mismatch between productive capacity and final demand. Undesired excess capacity has traditional room only in oligopolistic framework, like in Keynesian and Post-Keynesian models. Otherwise I show the possibility of its existence (and persistence) also with reference to a perfectly competitive economy where firms use massively information and communication technologies (ICT). In this stylized economy , undesired excess capacity is associated with “ ex-post ” sunk costs, in terms of mismatch between total revenues and production costs. My approach, which draws a production theory alternative to the neoclassical one, makes it possible to account for these costs and connect them to the role of money, under the form of credit, in the continuation of the economic process. Moreover, in the conclusion of this paper, I show how the notion of equilibrium that emerges from the analysis could be useful to address the issue of dynamics.