<Lecture 23> Theories of Industrial Organization There are many applications of microeconomic theory (economics of health care; environmental and natural resource econ; labor economics; etc.) What is Industrial Organization ? Industrial organization is concerned with the functioning of imperfectly competitive markets and the behavior of firms in these markets. When we look at the real world, we make the following observations (stylized facts):- Many industries are composed of just a few firms - not as many as assumed in the perfectly competitive model, and not just one, as assumed in the monopoly model- Firms in some industries produce homogeneous or almost identical products, whereas firms in other industries sell differentiated products. Harvard Tradition (1940-60): Structure-Conduct-Performance (SCP)- Structure (number and size of firms, their cost and demand conditions, the nature of their products, condition of entry and degree of regulation)- Conduct (decision about pricing and output, investment, marketing, and product design)
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