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“The second attempt to model monopolistic competition was far more successful than the first, essentially because the second attempt introduced a formalization that had all the relevant characteristics of monopolistic competition but was still relatively easy to handle” (pp. 1–2). The story of the first revolution is that various precursors, such as Marshall, understood that the middle ground between perfect competition and monopoly was fraught with danger, so they avoided it. In the 1930s, Edward Chamberlin and Joan Robinson independently applied the marginal revenue curve to draw the now-familiar equilibrium position for a profit-maximizing, monopolistically competitive firm. However, the first revolution never really succeeded: “Given the elegance of the monopolistic competition model, it is surprising to see how little influence it had on economic theory” (p. 10). Several of the papers make reference to the failed 1930s monopolistic competition revolution without going into detail. It seems that it is an agreed upon fact.

This chapter explores the origins of the theme of competitive advantage in 19th and early 20th century economics. This theme, which forms the core of modern Strategic Management, was a battleground for debates about the value of abstract theory versus observations about real-life events. Intellectual genealogies, citations, and other sources show the central roles played by the University of Vienna and Harvard University. These two institutions strongly influenced the theory of monopolistic competition as well as all three modern views of competitive advantage – the industrial as expressed by Porter, the resource-based as expressed by Penrose, and the evolutionary as expressed by Schumpeter.

“Economics is a Serious Subject.” Edwin Cannan.

The “upper echelon” literature has mainly produced static empirical studies on the impact of top management team composition on organizational outcomes, ignoring the dynamics of industrial demography. Organizational ecology explicitly studied the dynamics of organizational diversity at the population level, however largely ignoring how the entry and exit of executives shapes organizational diversity over time. In this paper, we try to integrate both streams of demography research and develop a multi-level behavioral theory of organizational diversity, linking selection processes at both levels of analysis. The behavioral mechanism connecting the two levels of analysis is the stylized empirical fact that small groups, including top management teams, routinely reproduce their demographic characteristics over time. We argue that, under certain conditions, the potent forces of team homogenization coevolve with those of population-level selection to sustain between-firm diversity.