Industrial Economics=Econ 171
– brilliant writer about Industrial Organization, “structure, conduct and
– also a major writer, University of Chicago, against Stocking’s work “Economic
Theory of Regulation”, won a Nobel Prize in 1982
– first empirical economic studies, nobody believes in his work
Paul Samuelson –
second Nobel Prize, in 1970; neoclassical economist.
: any cost incurred in other than producing something. Ex. Hiring attorneys for
Coase-Nobel prize for Externalities:
If transaction costs are 0, you don’t need externalities because they will be internal
- Game theory
: how oligopolies operate
- Contestable markets
1937- Are market and firms two ways to organize the same variables? What determines how
much input will a firm produce itself?
It is relative to the cost of using market or cost of producing a product that defines it.
Transaction costs vary with individuals involved and market character.
Risk is not assigned to Uncertainty.
How many other firms supplying input are there? The greater the # of firms, the more willing
you are to rely on the market.
-Bounded rationality – we go ahead and make a decision for the situation we’re in, w/out
-Opportunism – The more you believe a firm will act opportunistic, the less likely you are to rely
on the market.
The greater the uncertainty is, the more opportunistic the firms are!
As uncertainty increases, the number of firms decreases that you depend on, you become less
opportunistic, you rely on the market less.
-next innovation, analyzes how would firms react.
Firms are few if a firm has to have a reaction pattern. If firm 1 has strategy 1, the second firm
should think about how to react to that. Most common-duopoly, a relationship.
-if price of a good rises above costs, entry would occur. Always assumed to
be true, now we know that markets are not necessarily contestable.
-Perfect competition – very common when economics was invented, now not as common. Used
most often in economic models.
-Monopoly – single seller, many buyers, we don’t have to worry about products.
Monopsonist – 1 buyer