MARSHALLIAN VERSUS WALRASIAN STABILITY.

SUMMARY In comparing Marshallian and Walrasian stability criteria, opposite stability conditions are found when both demand and supply curves are downward sloping. This paper resolves the inconsistency by considering a behavioral model of the firms in a competitive industry and then specifying the conditions under which the relevant instantaneous adjustment processes will result in stability at the industry level. It turns out that the concept of the representative firm is inadequate for a considerations of the stability of industry equilibrium. Moreover, for different reasons the Walrasian adjustment process is applicable only when all firms are operating on the rising portion of their marginal cost curves. Hence, in the only situation in which the Walrasian and Marshallian processes adequately represent the dynamics of competitive industry (namely rising marginal cost curves for all firms) they lead to identical stability conditions. [ABSTRACT FROM AUTHOR]