Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

Part One

Foundations

We begin our study of industrial organization by reviewing the basic building blocks of market analysis. The first chapter provides a road map for the entire enterprise. Here, we describe the central aim of industrial organization, namely, the investigation of firm behavior and market outcomes in settings of less than perfect competition. We emphasize that an understanding of strategic interaction is a critical component of this analysis. We end the chapter with a study by Nicholson (2008) relating the strength of active antitrust policy to exposure to trade and measures of economic development.

In Chapter 2, we review the basic microeconomics of the two polar textbook cases of perfect competition and pure monopoly. This permits the introduction of basic supply and demand analysis, as well as the notions of consumer surplus, producer surplus, and total surplus necessary for welfare evaluation of market outcomes. In addition, we introduce intertemporal considerations, discounting, and the Coase durable goods conjecture. We conclude with a review of the Chevalier and Goolsbee (2009) paper testing the rational forward-looking behavior reflected in student textbook purchasing decisions.

Chapter 3 focuses on how we might identify those markets where market power is likely to be a problem. This is an obvious place to introduce such measures as the n-firm concentration ratio and the Herfindahl-Hirschman Index. However, we also take the additional step of introducing ...