Industrial organization

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Introduction Industrial Organization: The S-C-P

1. Issues in Industrial Organization
2. History and theoretical influences
3. The S-C-P analytical framework

In IO look at the environment: customers, providers, competitors, bank…

Learning objectives 
This chapter covers the following topics :
* Static & dynamics views of competition
* Thestructure-conduct-performance paradigm
* The Chicago school approach to the study of competition

Key terms

Austrian school
Chicago school
Collusion hypothesis
Distinctive capabilities
Efficiency hypothesis
Five forces model
New industrial organization
SCP paradigm
Value chain

Issues in industrial Organization

« Dynamic analysis of the production system through marketstructures, strategies of firms and their performances. »

« IO studies production and market behaviours of firms, as well as competitive interactions between them» : all decisions of firm have make with interaction between the different firm.

“Industrial organization is a field of economics that studies the structure of and boundaries between firms and markets and the strategic interactions offirms. The study of industrial organization adds to the perfectly competitive model real-world frictions such as limited information, transaction costs, costs of adjusting prices, government actions, and barriers to entry by new firms into a market that may be associated with imperfect competition. It then considers how firms are organized and how they compete” (source Wikipedia).

* Issues:* Small number markets and industrial concentration
* Market power and strategies of firms

Is the firm size compatible with competition on the market?

*industry: branche/secteur
* mesoeconomics: middle economic level
* field of IO: the economic of scale (économie d’echelle)

* Opposition of 2 schools:
- Chicago school (Stigler, Friedman, Reder…)
The Chicago school isassociated with neoclassical price theory and libertarianism in its support of lower taxation and private sector regulation (Source: Wikipedia)
* Free competition
* Any state intervention
* The firm are more efficient with the competition
* Short time position in the market

- Harvard school (S-C-P) (Mason, Wallace, Bain)

* Intervention of state: antitrust
Ex: cartel panneauroutier: partage du marché des panneaux routiers dans un but de figer les parts de marché ou télé mobile : on a des abonnées qui augmentent constamment et de manière très forte cependant les parts de marché de chaque opérateur ne bougent pas, c’est le résultat d’une concentration.
A cette accusation d’entente et de non concurrence l’école d’Harvard veut un état interventionniste donc l’école deChicago répond qu’il y a une tentation trop forte pour les firmes des ententes de ne pas respecter le contrat : théories des jeux (dilemme du prisonnier)

History and influences

The big steps of IO

The pioneers
Jean-Baptiste Say (1767-1832) “économie industrielle”
Alfred Marshall (1842-1924):
-The Economics of Industry (1879)
-Principles of Political Economy (1890)
- Industry andTrade (1919)

He introduce e new concept: the internal and external economies of scale. The reduction of cost is the result of the organization of the production (labor and materials) and of the general development of the industry (le secteur de la firme).

The German Historical school
* First period : F. List (1798 – 1846), G. Roscher (1815-1894)

“Its flavor (parfum, lacouleur) relied much on empirical and inductive reasoning (...). Roscher disparaged the idea of universal theoretical systems - arguing that economic behavior and thus economic "laws" were contingent upon their historical, social and institutional context. To derive any economic "laws", the he argued, the method is thus inevitably cross-disciplinary: one must look at economic life with the eye of a...
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