Industrial organization

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.

References

Tirole, Jean The Theory of Industrial Organization, (The MIT Press, 1988). This is a "standard" graduate textbook in the field. The book requires extensive knowledge of calculus as well as game theory.
Shy, Oz Industrial Organization: Theory and Application (The MIT Press, 1995). This is an advanced undergraduate text.
Shepherd, William The Economics of Industrial Organization (Prentice-Hall, 1985) ISBN 0-13-231481-9 This is an undergrad text.

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References

See also