Industrial Organization

Industrial organization (or industrial organisation in British English) is an important part of the academic discipline known as economics. It is basically used for studying strategic behaviour of business establishments. There are other important areas in the industrial organization like market interaction and structure. Competition among various business establishments is also an integral part of industrial organization.

Industrial Organization Concepts

There are certainly other important concepts that are related to industrial organization. They may be enumerated as below:

• Limited information
• Government actions
• Transaction cost
• Barriers to entry
• Cost of adjusting prices

Industrial organization is also known as the economics of imperfect competition. Development of this concept can be attributed to economists like Edward Chamberlin, Joe S. Bain, and Edward S. Mason. The most important industrial organization model is the Structure-Conduct-Performance model. Since the 1990s, game theory has become extremely important as far as industrial organization is concerned.

There are certain market structures that are studied more often than other types of market structures. Those may be mentioned as below:

• Perfect competition
• Monopolistic competition
• Monopoly
• Oligopoly
• Monopsony

There are certain conditions that need to be present in a particular market structure if the output generated by various companies and other business establishments, functioning within it, is to be studied by using industrial organization. These conditions may be mentioned as below:

• Price discrimination
• Collusion
• Product differentiation
• Signalling like warranties and advertising
• Durable goods
• Mergers and acquisitions
• Experience goods
• Entry and exit
• Secondary markets or second-hand markets, which may impact the behavior of firms in primary markets.

Perfect Competition

Perfect competition is a market structure. There are certain conditions that qualify a market as a perfectly competitive market. They may be mentioned as below:

• There are numerous firms
• Business establishments are selling the same product
• Consumers have complete knowledge of products and their prices
• Every business establishment is a price taker.
• There is freedom of exit and entry in the market.
• Every business establishment has a comparatively small share of the entire market.

Oligopsony

Oligopsony is a market structure whereby there is a limited number of large buyers. This is applicable only for a particular service or product. Having oligopsony means prices of goods and services are low as buyers have more control over sellers as opposed to the other way round.

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