Stigler vs. Chamberlain

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Don't know why I hadn't read it before, but I just finished Monopolistic Competition in Retrospect (1949), the short essay in which Stigler martyred Chamberlain's theory of monopolistic competition. At its core, Stigler's paper is methodological: for practical problems, use the economic theory appropriate to answer the question -- just not Chamberlain's. Stigler insists that Chamberlain's economic theory is incoherent, except for the analytically proper situation where you have multiple firms, all producing the same product, and all facing decreasing demand curves. That was pretty good.

And it's good that Chamberlain's influence has refocused serious research interest on trademarks and advertising product structure and evolution.

That's what a martyr is for.

[Update 1]: Hammond and Hammond dug into the Early Stigler-Friedman Correspondence. There's much on point starting on page 13, but on page 17 we get Friedman's statement of Stigler's Laws:

Stigler's Law: The gorgeousness of a theory varies with the range of phenomena it embraces and inversely with the number of its constants.

Stigler II: If businessmen deliberately adopt and persistently retain a practice, that practice is explicable in terms of maximum profits.

Stigler's Razor: In dealing with economic theory, always use the most advanced branch of mathematics you can apply.

[Reformatted from original]

I must note that the paper is online, for free, but the authors have marked every page "Not to be quoted". I take it they actually mean "Not to be quoted by scholars in serious, respectable publications". Hence I feel perfectly fine linking and quoting from T&B.

2 Comments

Wasn't one of the main reasons imperfect competition lost out to the perfectly competitive model is that the imperfect competition approach could not be modeled with the math economists were using in the 1950s.

can you please post the link to the paper...i cannot find it..

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This page contains a single entry by Kevin published on January 28, 2008 5:28 PM.

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