Advertising, Product Variation, and the Limits of Economics

Abstract

EORIES of or have become an 1 accepted part of the orthodox body of economic doctrine since their first presentation in well-developed form by Professor Chamberlin, Mrs. Robinson, and Dr. Stackelberg less than twenty years ago.' They have been assimilated into the textbooks, and the marginal revenue curve has become part of the standard apparatus of economists. The pedagogic success of these theories has been remarkable. Even on the level of pedagogy, however, their success may be to certain extent illusory. Chamberlin's hope, as expressed in the subtitle of his book, was to achieve a reorientation of the theory of value. Yet the new theories have not replaced the theory of pure or even the theory of pure monopoly. Monopolistic has rather tended to be identified as separate type of market situation-occupying, along with oligopoly, an area midway between pure and simple monopoly. The theory appropriate to this mixed, impure, or market situation has been added to older theories that are presumably still appropriate in their own spheres. In short, what has been achieved, so far as most students are concerned, is not so much reorientation as elaboration. Another wing, or perhaps porch, has been added to economic theory; but the structure retains its original form. This outcome may be considered as symptom of the deeper problem that is I Edward H. Chamberlin, The Theory of Monopolistic Competition (Cambridge, Mass., I933) (subsequent references will be to the 5th ed., Cambridge, I946); Joan Robinson, The Economics of Imperfect Competition (London, I933); Heinrich von Stackelberg, Marktform und Gleichgewicht (Vienna, I934). For further references and notes on the development of the theories see Robert Triffin, Monopolistic Competition and General Equilibrium Theory (Cambridge, Mass., I940), and J. K. Galbraith, Monopoly and the Concentration of Economic Power, in A Survey of Contemporary Economics, ed. Howard S. Ellis (Philadelphia, I948). The latest edition of Chamberlin's book contains classified bibliography. Chamberlin is the only one of the three writers cited in the text who deals explicitly with problems of advertising and product variation. For this reason, my paper is related much more directly to his work than to that of either Mrs. Robinson or Stackelberg. Indeed, if Chamberlin's interpretation of Mrs. Robinson were accepted, her theory would have to be excluded from consideration in this article altogether, on the ground that imperfect competition does not encompass product variation (Chamberlin, op. cit., pp. I9I ff., esp. pp. 205-9). My own view, which seems to coincide with that of Triffin (op. cit., pp. 36-42), is that Mrs. Robinson was concerned with almost exactly the same central problems as Chamberlin, even though her approach to them was less direct. In what follows, therefore, I have used the terms monopolistic competition and imperfect competition interchangeably. (The contrary view on this point is stated strongly by George Stigler in Five Lectures on Economic Problems [London, I9491, pp. I2-I3.) Stackelberg's chief interest, on the other hand, was in the problems of what might be called business power arising in the relations of firms or individuals to one another when their numbers are small. These power relations may be affected by product variation and advertising, to be sure, but Stackelberg's discussion runs mainly in terms of price determination (Preispolitik) and quantity determination (Mengenpolitik) (op. cit., p. i6).