In economics, industrial organization is a field that builds on the theory of the
firm by examining the structure of firms and markets. Industrial organization
adds real-world complications to the perfectly competitive model,
complications such as transaction costs, limited information, and barriers to
entry of new firms that may be associated with imperfect competition.
It analyzes determinants of firm and market organization and behavior as
between competition and monopoly, including from government actions.
There are different approaches to the subject. One approach is descriptive in
providing an overview of industrial organization, such as measures of
competition and the size-concentration of firms in an industry. A second
approach uses microeconomic models to explain internal firm organization and
market strategy, which includes internal research and development along with
issues of internal reorganization and renewal. A third aspect is oriented to
public policy as to economic regulation, antitrust law, and, more generally, the
economic governance of law in defining property rights, enforcing contracts,
and providing organizational infrastructure.
The subject has a theoretical side and a practical side. According to one
textbook: "On one plane the field is abstract, a set of analytical concepts
about competition and monopoly. On a second plane the topic is about real
markets, teeming with the excitement and drama of struggles among real firms".
The extensive use of game theory in industrial economics has led to the
export of this tool to other branches of microeconomics, such as behavioral
economics and corporate finance. Industrial organization has also had
significant practical impacts on antitrust law and competition policy.
The development of industrial organization as a separate field owes
much to Edward Chamberlin, Edward S. Mason, J. M. Clark, and particularly Joe
S. Bain among others. Assessments of the subject have differed
over time. The preface to a related research volume in 1972 remarked on
Whither industrial organization?: "That all is not well with this in this once
flourishing field is readily apparent." A response came 15 years later:
"[T]oday's verdict is that industrial organization is alive and well and the
queen of applied microeconomics." Subareas
The Journal of Economic Literature classification codes are one way of
representing the range of economics subjects and subareas. There, Industrial
Organization, one of 20 primary categories, has 9 secondary categories,
each with multiple tertiary categories. The secondary categories are listed
below with corresponding available article-preview links of The New
Palgrave Dictionary of Economics Online and footnotes to their respective
JEL-tertiary categories and associated New-Palgrave links.
JEL: L1 – Market Structure, Firm Strategy, and Market Performance
JEL: L2 – Firm Objectives, Organization, and Behavior
JEL:L3 – Non-profit organizations and Public enterprise
JEL: L4 – Antitrust Issues and Policies JEL: L5 – Regulation and Industrial
policy JEL: L6 – Industry Studies:
Manufacturing JEL: L7 – Industry Studies: Primary
Products and Construction JEL: L8 – Industry Studies: Services
JEL: L9 – Industry Studies: Transportation and Utilities
Market structures The common market structures studied in
this field are the following: Perfect competition
Monopolistic competition Duopoly
Oligopoly Oligopsony
Monopoly Monopsony
Areas of study Industrial organization investigates the
outcomes of these market structures in environments with
Price discrimination Product differentiation
Durable goods Experience goods
Secondary markets, which can affect the behaviour of firms in primary markets.
Collusion Signalling, such as warranties and
advertising. Mergers and acquisitions
Entry and Exit History of the field
A 2009 book Pioneers of Industrial Organization traces the development of
the field from Adam Smith to recent times and includes dozens of short
biographies of major figures in Europe and North America who contributed to the
growth and development of the discipline.
Other reviews by publication year and earliest available cited works those in
1970/1937, 1972/1933, 1974, 1987/7 from 1968 on, 3 from 1937 to 1956, 2009/c.
1900., and 2010/1951. See also
Bertrand competition Bertrand-Edgeworth model
Competition policy Cournot competition
Input-output model Important publications in industrial
organization Structure-conduct-performance paradigm
Notes References
Paul Belleflamme and Martin Peitz, 2010. Industrial Organization: Markets and
Strategies. Cambridge University Press. Summary and Resources
Cabral, Luís M. B., 2000. Introduction to Industrial Organization. MIT Press.
Links to Description and chapter-preview links.
Shepherd, William, 1985. The Economics of Industrial Organization,
Prentice-Hall. ISBN 0-13-231481-9 Shy, Oz, 1995. Industrial Organization:
Theory and Applications. Description and chapter-preview links. MIT Press.
Vives, Xavier, 2001. Oligopoly Pricing: Old Ideas and New Tools. MIT Press.
Description and scroll to chapter-preview links.
Jeffrey Church & Roger Ware, 2005. "Industrial Organization: A Strategic
Approach,"”, Free Textbook Nicolas Boccard, 2010. "Industrial
Organization, a Contract Based approach”, Open Source Textbook
Journals International Journal of the Economics
of Business and issue preview links International Journal of Industrial
Organization and issue-preview links Journal of Industrial Economics, Aims
and Scope, and issue-preview links. Journal of Law, Economics, and
Organization and issue-preview links. Review of Industrial Organization and
issue-preview links.