Contents
Industrial Organisation
Rationale
Industrial Organization is the field of economics that studies the strategic behavior of firms, the structure of markets and their interactions. Also called 'Industrial Economics', but perhaps a most appropriate term is the 'Economics of Imperfect Competition'.
Theoretical analysis in the field is heavily based on game theory. This is not to be confused with the related psychological area, Industrial and organizational psychology.
The common market structures studied in this field are the following:
Industrial organization investigates the outcomes of these market structures in environments with
- Price discrimination
- Product differentiation
- Durable goods
- Experience goods
- Secondary markets or second-hand markets, which can affect the behaviour of firms in primary markets.
- Collusion
- Signaling, such as warranties and advertising.
- Mergers and Acquisitions
- Entry and Exit
The subject has a theoretical side and a practical side. According to one text book: "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" (Shepherd, W.; 1985; 1).
Given that it was the first field that used game theory in economics, industrial organization has become the natural exporter of methodological tools to other branches of microeconomics, such as organization economics, corporate finance, information economics
See also
- Important publications in industrial organization
- Competition policy
- Cournot competition
- Bertrand competition
- Input-output model
Today's Videos
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Teaching and Learning Resources
Foundations
- Industrial Organization: What, How, and Why
- Some Basic Microeconomics
- Market Structure and Market Power
- Technology and Cost
Microeconomics (from Greek prefix micro- meaning "small" + "economics") is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources.[1] Typically, it applies to markets where goods or services are being bought and sold. Microeconomics examines how these decisions and behaviours affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the quantity supplied and quantity demanded of goods and services.[2][3]
This is in contrast to macroeconomics, which involves the "sum total of economic activity, dealing with the issues of growth, inflation, and unemployment."[2] Microeconomics also deals with the effects of national economic policies (such as changing taxation levels) on the aforementioned aspects of the economy.[4] Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon 'microfoundations' — i.e. based upon basic assumptions about micro-level behavior.
One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficient results, and describes the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertainty and economic applications of game theory
Also considered is the elasticity of products within the market system.
- Assumptions and definitions
- Modes of operation
- Opportunity cost
- Applied microeconomics
- References
- Further reading
- Open Source Introduction to Microeconomics (see wiki article) by R. Preston McAfee - California Institute of Technology
- Amosweb.com homepage - online economics dictionary
- X-Lab: A Collaborative Micro-Economics and Social Sciences Research Laboratory
- Micro Economics - the role of micro economics in supporting the social fabric of macro economies
- Simulations in Microeconomics
Monopoly Power and Practice
Tutorials
- Price Discrimination and Monopoly: Linear Pricing.
- Price Discrimination and Monopoly: Non-Linear Pricing.
- Product Variety and Quality Under Monopoly.
- Commodity Bundling and Tie-In Sales
Readings
A monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific person or enterprise is the only supplier of a particular commodity. (This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry)[1]Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods.[2] The verb "monopolise" refers to the process by which a company gains much greater market share than what is expected with perfect competition.
A monopoly is be distinguished from monopsony, in which there is only one buyer of a product or service ; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations such that one or a few of the entities have market power and therefore interact with their customers (monopoly), suppliers (monopsony) and the other companies (oligopoly) in a game theoretic manner – meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition in which companies are "price takers" and do not have market power.
When not coerced legally to do otherwise, monopolies typically maximize their profit by producing fewer goods and selling them at higher prices than would be the case for perfect competition. (See also Bertrand, Cournot or Stackelberg equilibria, market power, market share, market concentration, Monopoly profit, industrial economics). Sometimes governments decide legally that a given company is a monopoly that doesn't serve the best interests of the market and/or consumers. Governments may force such companies to divide into smaller independent corporations as was the case of United States v. AT&T, or alter its behavior as was the case of United States v. Microsoft, to protect consumers.
Monopolies can be established by a government, form naturally, or form by mergers. A monopoly is said to be coercive when the monopoly actively prohibits competitors by using practices (such as underselling) which derive from its market or political influence (see Chainstore paradox). There is often debate of whether market restrictions are in the best long-term interest of present and future consumers.
In many jurisdictions, competition laws restrict monopolies. Holding a dominant position or a monopoly of a market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore incur legal sanctions. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks are all examples of government granted and enforced monopolies. The government may also reserve the venture for itself, thus forming a government monopoly.
- Market structures
- Characteristics
- Sources of monopoly power
- Monopoly versus competitive markets
- The inverse elasticity rule
- Price discrimination
- Monopoly and efficiency
- Monopolist shutdown rule
- Breaking up monopolies
- Law
- Historical monopolies
- Countering monopolies
Game Theory and Oligopoly Markets
Tutorials
Readings
Game Theory is a branch of applied mathematics and economics that studies situations where players choose different actions in an attempt to maximize their returns. First developed as a tool for understanding economic behavior and then by the RAND Corporation to define nuclear strategies, game theory is now used in many diverse academic fields, ranging from biology and psychology to sociology and philosophy. Beginning in the 1970s, game theory has been applied to animal behavior, including species' development by natural selection. Because of games like the prisoner's dilemma, in which rational self-interest hurts everyone, game theory has been used in political science, ethics and philosophy. Finally, game theory has recently drawn attention from computer scientists because of its use in artificial intelligence and cybernetics.
In addition to its academic interest, game theory has received attention in popular culture. A Nobel Prize-winning game theorist, John Nash was the subject of the 1998 biography by Sylvia Nasar and the 2001 film A Beautiful Mind. Game theory was also a theme in the 1983 film WarGames. Several game shows have adopted game theoretic situations, including Friend or Foe? and to some extent Survivor. The character Jack Bristow on the television show Alias is one of the few fictional game theorists in popular culture. [1] Although similar to decision theory, game theory studies decisions that are made in an environment where various players interact. In other words, game theory studies choice of optimal behavior when costs and benefits of each option are not fixed, but depend upon the choices of other individuals. |
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- References
- Yale Economic Review: The Rise of Game Theory.
- Paul Walker: History of Game Theory Page.
- David Levine: Game Theory. Papers, Lecture Notes and much more stuff.
- Alvin Roth: Game Theory and Experimental Economics page - Comprehensive list of links to game theory information on the Web
- Mike Shor: Game Theory .net - Lecture notes, interactive illustrations and other information.
- Jim Ratliff's Graduate Course in Game Theory (lecture notes).
- Valentin Robu's software tool for simulation of bilateral negotiation (bargaining)
- Don Ross: Review Of Game Theory.
- Bruno Verbeek and Christopher Morris: Game Theory and Ethics
- Chris Yiu's Game Theory Lounge
- Elmer G. Wiens: Game Theory - Introduction, worked examples, play online two-person zero-sum games.
- Marek M. Kaminski: Game Theory and Politics - syllabuses and lecture notes for game theory and political science.
- Web sites on game theory and social interactions
Anti-competitive Behaviour
Tutorials
- Limit Pricing and Entry Deterrence
- Predatory Conduct: Recent Developments
- Price- Fixing and Repeated Games
- Collusion in Practice
Readings
Anti-competitive practices are business or government practices that prevent or reduce competition in a market (see restraint of trade).
- Cartel
- Antitrust law
- Predatory pricing
- Microeconomics
- Oligopoly
- Price discrimination
- Natural monopoly
- Loss leader
- Austrian school
Constructual Relations between Firms
Tutorials
- Horizontal Mergers
- Vertical and Conglomerate Mergers
- Vertical Price Restraints
- Non-Price Vertical Restraints
Readings
Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can aid, finance, or help an enterprise grow rapidly in its sector or location of origin or a new field or new location without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.
- Acquisition
- Business valuation
- Financing M&A
- Specialist M&A advisory firms
- Motives behind M&A
- Effects on management
- M&A research and statistics for acquired organizations
- Brand considerations
- The Great Merger Movement
- Cross-border M&A
- M&A failure
- Major M&A
- M&A in popular culture
- Competition regulator
- Control premium
- Corporate advisory
- Divestiture
- Factoring (finance)
- Fairness opinion
- IPO
- List of bank mergers in United States
- Management control
- Management due diligence
- Mergers and acquisitions in United Kingdom law
- Merger control
- Merger integration
- Merger simulation
- Second request
- Shakeout
- Venture capital
- Swap ratio
Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called “horizontal restraints,” which are found in agreements between horizontal competitors. Vertical restraints can take numerous forms, ranging from a requirement that dealers accept returns of a manufacturer’s product, to resale price maintenance agreements setting the minimum or maximum price that dealers can charge for the manufacturer’s product.
So-called “intrabrand restraints” such as resale price maintenance govern products made by a particular manufacturer, while “interbrand restraints” regulate a dealer’s or manufacturer’s relationship with its trading partner’s rivals (e.g., "English clauses"). Quintessential examples of interbrand restraints include tying contracts, whereby a purchaser agrees to purchase a second product as a condition of obtaining a so-called "tying" product, and exclusive dealing agreements, whereby a dealer agrees not to purchase products from suppliers that are rivals of the manufacturer.
Non-price Competition
Tutorials
- Advertising, Market Power, and Information
- Advertising, Competition, and Brand
- Research and Development
- Patents and Patent Policy
Readings
Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship" (McConnell-Brue, 2002, p. 43.7-43.8). The firm can also distinguish its product offering through quality of service, extensive distribution, customer focus, or any other sustainable competitive advantage other than price. It can be contrasted with price competition, which is where a company tries to distinguish its product or service from competing products on the basis of low price. Non-price competition typically involves promotional expenditures, (such as advertising, selling staff, the locations convenience, sales promotions, coupons, special orders, or free gifts), marketing research, new product development, and brand management costs.
Firms will engage in non-price competition, in spite of the additional costs involved, because it is usually more profitable than selling for a lower price, and avoids the risk of a price war.
Although any company can use a non-price competition strategy, it is most common among oligopolies and monopolistic competition, because firms can be extremely competitive.
See also
New Developments in Industrial Organisation
Tutorials
Readings
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange.
There are several variations on the basic auction form, including time limits, minimum or maximum limits on bid prices, and special rules for determining the winning bidder(s) and sale price(s). Participants in an auction may or may not know the identities or actions of other participants. Depending on the auction, bidders may participate in person or remotely through a variety of means, including telephone and the internet. The seller usually pays a commission to the auctioneer or auction company based on a percentage of the final sale price.
- History of the auction
- Types of auction
- Time requirements
- Auctions: characterization
- Common uses for auctions
- Bidding strategy
- Auction terminology
- JEL classification
Business networking is a socioeconomic activity by which groups of like-minded businesspeople recognize, create, or act upon business opportunities. A business network is a type of social network whose reason for existing is business activity. There are several prominent business networking organizations that create models of networking activity that, when followed, allow the business person to build new business relationships and generate business opportunities at the same time. A professional network service is an implementation of information technology in support of business networking. Many businesspeople contend business networking is a more cost-effective method of generating new business than advertising or public relations efforts. This is because business networking is a low-cost activity that involves more personal commitment than company money.
As an example, a business network may agree to meet weekly or monthly with the purpose of exchanging business leads and referrals with fellow members. To complement this activity, members often meet outside this circle, on their own time, and build their own one-to-one relationship with the fellow member.
Business networking can be conducted in a local business community, or on a larger scale via the Internet. Business networking websites have grown over recent years due to the Internet's ability to connect people from all over the world. Internet companies often set up business leads for sale to bigger corporations and companies looking for data sources.
Business networking can have a meaning also in the ICT domain, i.e. the provision of operating support to companies and organizations, and related value chains and value networks.
It refers to an activity coordination with a wider scope and a simpler implementation than pre-organized workflows or web-based impromptu searches for transaction counterparts (workflow is useful to coordinate activities, but it is complicated by the use of s.c. patterns to deviate the flow of work from a pure sequence, in order to compensate its intrinsic linearity; impromptu searches for transaction counterparts on the web are useful as well, but only for non-strategic supplies; both are complicated by a plethora of interfaces needed among different organizations and even between different IT applications within the same organization).
- Large firms networks vs. small business networks
- Online business networking
- Face-to-face business networking
- General business networking
- Networked Businesses
- Business networking in the ICT domain
Recommended Texts
 |
Industrial
Organization : Contemporary Theory and Practice (with Economic
Applications), 3rd Edition
ISBN-10: 0324261306 |
ISBN-13: 9780324261301 Check the availability and buy your books from our Bookshop. |
 |
Industrial Economics and Organization: A European Perspective, 2/e Bernadette
Andreosso Check the availability and buy your books from our Bookshop. |
 |
Managerial Economics and Organizational Architecture, 3/e James
Brickley, University of Rochester Check
the availability and buy your books from our Bookshop. |
Resources
