Edward Chamberlin: Monopolistic Competition And Pareto Optimality

Abstract

In treatments of Monopolistic Competition, Edward Chamberlin and Joan Robinson are usually credited with simultaneously and independently developing the theory of monopolistic or imperfect competition.  While their contributions were indeed simultaneously developed, it is inappropriate to treat them as having duplicated each other’s efforts.  Yet it has become customary in many treatments to regard them as having done just that, and modern textbook treatments tend to mention the two as if they were interchangeable.  In no respect were they less so than in their views of the welfare implications of monopolistic competition.  But the passage of time seems to have resulted in a blurring of the distinction between them, and it has become a common practice to ascribe to monopolistic competition an incompatibility with Pareto optimality.  An important point of focus of this paper is Chamberlin’s response to the tendency to treat his analysis as indicating a market failure.