Increasing Returns and Competitive Equilibrium--The Content and Development of Marshall's Theory

This paper reviews Alfred Marshall's attempts to reconcile increasing returns and competition from the early economic writings to the later editions of his Principles. It is shown that while Marshall's final solution to the problem involved naming external economies the cause of increasing returns in a regime of competition , both the life cycle of the firm and internal economies remained necessary to his argument. Their function was to give some operation al content to the elusive concept of external economies.