Joan Robinson and Edward Chamberlain

The reading on Joan Robinson and Edward Chamberlain reveals how economic ideas have changed as well as how real-world markets operate. Alfred Marshall’s financial models of the twentieth century dealt with both perfect competition and monopolistic markets. Ideal competition is defined by homogeneous products, a large number of enterprises, and free entry. Sraffa stated in his paper “The law of returns in competitive conditions” that in the long run, the decreasing cost does not apply in a competitive market (535). On the one hand, the forces that govern a fully competitive market. Monopolies, on the other side, control prices in the market thus amassing huge profits and gaining more economic power.

Economists have analyzed the imperfect markets in the dynamic economy. The analyses include duopoly in modern markets where two firms determine the profit-maximizing output. The price and production of the two companies can reach to competitive levels. For instance, the government intervention on railway rates could not correct the different railway rates. The expenses in the railways’ expenses are independent and are not characterized by high costs. The competitive model does not apply to railroads. The competing joint supply theory can apply to railway case. The railway industry is not dependent on other costs and that its market is self-regulating.

Chamberlin’s new theory confirmed that competitive forces exist where there are many sellers while monopolies exist to the extent of product differentiation (530). Each one of the product is differentiated to allow for different consumer tastes. Product differentiation is the element that controls price in the monopoly industry. The differentiated products give control of costs among companies. The uniqueness of the individual products is protected by copyrights, trademarks, brand names, and location of the producing companies and the market that they are selling. Geographical locations may be used to differentiate products too. For instance, two identical products may be produced in two different areas and sold to various consumers. Product differentiation may cause prices to change in different locations. Product differentiation in a market may be termed as a difference in composition of the products sold which may change consumer preferences. The increase in demand for a particular item may lead to price adjustments (Chamberlin 530).

Chamberlin looked at product differentiation that emanates from advertising. According to Chamberlin, advertising manipulates consumer wants and increases the demand for a particular product (530). Advertising may also change consumer preferences due to the marketing language used in advertising which leads to differentiation. Advertising does well in a competitive environment in a way that it establishes and maintains product differentiation. However, advertising in a monopolistic market would be a waste of resources as the firm would not need to advertise for it to make profits. Monopoly markets should strive to increase social welfare than to capitalize on gains while taking advantage of the monopoly. Monopolistic firms underutilize the available resources in the production of goods and services. Product differentiation in such an environment hinders output of socially optimum output scale.

Chamberlin argued that product differentiation brings variety and different customer choices (530). Therefore product differentiation promotes social welfare and benefits. A market full of similar products, therefore, lacks variety and options and thus does not offer social benefits to the society. Single firms in a competitive market are characterized by closely related and substitutable products. A conclusion can be made that in a competitive market, a particular seller’s change in price might change the costs of the market.

Joan Robinson’s price discrimination theory suggests that price discrimination in a monopoly firm may enhance welfare advantages (Schincariol 269). For instance, a monopoly business can be very lucrative. The theory suggests that price discrimination requires several conditions. The first requirement is that a monopoly must be exercised. The second condition is that market has several sellers and many markets. The third requirement is that profitability must differ in separate markets. Thus, a discriminating monopolist exists where product units are transferred from one market to another. The monopolist is motivated to shift products by additional revenue gained from selling in other markets (Tarshis 918). A monopoly may have a chance to sell at different prices in different markets. Nonetheless, modern markets should not allow monopolies because firms tend to maximize profits at the expense of the consumers. More so, a monopolist should not take advantage.

Conclusively, a monopoly can lead to loss of economic welfare because there will be no incentive to produce more. On the other hand, a competitive business environment enhances economic well-being. Economists have different views on different market systems that exist in the modern economy. For instance, the perspectives in the imperfect competition have differed from one economist to another. Joan Robinson criticized modern economics precisely the problem of getting to equilibrium (Schincariol 270). The complexity of the current economy has led to many arguments about how markets are regulated and the impact of different market systems. Market regulations have also changed in the modern business environment.

Works Cited

Chamberlin, Edward H. “Professor Chamberlin on Monopolistic and Imperfect Competition: Reply.” The Quarterly Journal of Economics, vol. 52, no. 3, 2012, p. 530.

Schincariol, Vitor E. ”Joan Robinson on Population Growth. Review of Political Economy.” Review of Political Economy, vol. 29, 2017, pp. 267-281.

Sraffa, Piero. ”The Laws of Returns under Competitive Conditions.” The Economic Journal, vol. 36, no. 144, 1926, p. 535.

Tarshis, Lorie. ”Remembering Joan Robinson.” Joan Robinson and Modern Economic Theory, 2015, pp. 918–920.