Industrial Economics
Industrial economics (also called industrial organisation) is the branch of microeconomics that studies the structure of firms and markets, the behaviour of firms within those markets, and the resulting market performance. It is particularly concerned with the causes and consequences of imperfect competition.[1]
Subject matter
Industrial economics analyses how the characteristics of a market—such as the number of firms, the degree of product differentiation, and the presence of barriers to entry—affect the behaviour of firms and the welfare of consumers. Its central concern is the relationship between market structure, conduct, and performance.[1]
Structure–conduct–performance paradigm
The traditional framework of industrial economics was the structure–conduct–performance paradigm, which posits that the structure of a market determines the conduct of firms, which in turn determines market performance.
| Element | Description |
|---|---|
| Structure | Characteristics such as the number of firms, concentration, and entry barriers. |
| Conduct | Firms' behaviour, including pricing, advertising, and investment. |
| Performance | Outcomes such as profitability, efficiency, and innovation. |
Topics
Major topics in industrial economics include:
- Monopoly and market power
- Oligopoly and strategic interaction
- Product differentiation and advertising
- Barriers to entry and competition policy
- Regulation of natural monopolies
- Mergers and acquisitions
- Innovation and technological change
Applications
Industrial economics informs competition policy, the regulation of industries, and the design of markets. It provides the analytical basis for assessing whether mergers should be permitted and how dominant firms should be regulated.[1]