History of Economic Thought. E. Chamberlin's theory of monopolistic competition (most important)

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History of Economic Thought. E. Chamberlin's theory of monopolistic competition (most important)

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57. THE THEORY OF MONOPOLISTIC COMPETITION E. CHAMBERLIN

Edward Hastings Chamberlin (1899-1967) introduced the concept "monopolistic competition", which, in his opinion, follows from the existence of a monopoly on product differentiation.

Monopoly on product differentiation assumes a situation where, by producing a certain product, different from the products of other firms, the firm has partial power in the market. This means that an increase in the price of its products will not necessarily lead to the loss of all buyers (which would be theoretically true under perfect competition).

The product is differentiated not only by the various properties of the product, but also by the conditions of sale, as well as the services accompanying the sale, and spatial location. If we interpret monopoly in this way, then we can recognize that monopoly exists in the entire system of market prices.

In other words, where the product is differentiated, the seller is both a competitor and a monopolist. The limits of power of this group of monopolists are limited, since the control over the supply of goods is partial due to the existence of substitute goods and the possible high price elasticity of demand.

Monopoly due to product differentiation, means that commercial success depends not only on the price and consumer quality of the product, but also on whether the seller will be able to put himself in a privileged position in the market, that is, monopolistic profit can arise where, with certain protection from the invasion of competitors, it can be created and increased existing demand for certain products.

Chamberlin's demand problem puts in a new way. In his model, the volume of demand and its elasticity act as parameters that the monopolist can influence through the formation of the tastes and preferences of buyers. Here the thesis is confirmed that practically all needs are social, that is, they are generated by public opinion. From here chamberlin concludes that price - not a decisive instrument of competition, since in creating demand the main emphasis is on advertising, product quality, and customer service. This means that under conditions of monopolistic competition, the price elasticity of demand decreases as the quality elasticity of demand increases.

chamberlin characterizes new approach to price and cost. His model involves searching for the optimal production volume and, accordingly, the price level that provides the company with maximum profit.

chamberlin assumes that under conditions of monopolistic competition firms maximize profits at a volume of production less than that which would provide the highest technological efficiency. This is because in order to sell additional products, the firm will either have to lower the price or increase the cost of sales promotion.

It is no coincidence that in his price theory Chamberlin introduces the concept of "selling costs", which he considers as the costs of adjusting demand to the product, in contrast to traditional production costs, considered by him as the costs of adapting the product to demand.

Author: Tatarnikov E.A.

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