In this article, we discussed the meaning of industrial organization, we also talked about the types and objectives, policy
Definition
Industrial organization (IO) is a field of economics that studies how companies behave in imperfect markets and how that behavior affects the market and consumers. IO economists analyze the structure of industries and firms to understand how companies maintain economic power, prevent competition, and control production and distribution.
The “industrial” in industrial organization refers to any large-scale business activity, such as tourism or agriculture—not just manufacturing. Industrial organization is also sometimes referred to as “industrial economy.”
Understanding Industrial Organization
The study of this builds on the theory of the firm, a set of economic theories that describe, explain and attempt to predict the nature of a firm in terms of its existence, behavior, structure and its relationship to the market.
In a 1989 paper, economists Bengt Holmstrom and Jean Tirol posed two simple questions for a theory of the firm. The first question was why do firms exist, meaning what is the need that they fill in society or an economic system. The second question succeeds the first and relates to determining the scale and scope of their operations.
Industrial Organization and Policy
Several organizations exist to promote research and collaboration on the study of industrial organization. One such organization is the Industrial Organization Society (IOS), founded in 1972 by Stanley Boyle and Willard Mueller to promote research on antitrust policy, regulatory policy, and competition and market power in real-world markets. The Review of Industrial Organization is the official journal of the IOS. Along with Northeastern University, the IOS has sponsored an annual International Industrial Organization Conference since 2003.
Industrial Organization Areas of Study
Below is a sample listing of topics that the study can focus on:
Market power
Product differentiation
Price discrimination
Durable goods and experience goods
Secondary markets and their relationship with primary markets
Collusion
Signaling
Mergers and acquisitions
Antitrust and competition
Industrial policy
Types of Industrial Organization
Pure competition, also known as perfect competition, is a theoretical market structure where many small businesses compete with each other, selling identical products or services. In this market, no single business has the power to influence prices.
A pure monopoly is a market structure where a single company has complete control over the supply of a product or service and there are no close substitutes: A pure monopoly has significant barriers to entry that make it nearly impossible for other firms to enter the market and compete. These barriers can be economic, legal, or technological.
Monopolistic competition exists when many companies offer competing products or services that are similar, but not perfect substitutes. The barriers to entry in a monopolistically competitive industry are low, and the decisions of any one firm do not directly affect its competitors.
An oligopoly is the small number of firms control the market. Where oligopolies exist, producers can indirectly or directly restrict output or prices to achieve higher returns. A key characteristic of an oligopoly is that no one firm can keep the others from having significant influence over the market. An oligopoly differs from a monopoly, in which one firm dominates a market.
Objective of Industrial Organization
The objective of industrial organization is to study how firms compete in the market and why markets are not perfectly competitive. It also examines the relationship between a firm’s behavior and market structure.
Some of the common objectives of an organization include:
Profit-making,
Time efficiency,
Community growth,
Strengthened customer service.
Obstacles hindering
The achievement of organizational goals include:
Time
Financial and environmental constraints.
Conclusion
Industrial organization focuses on how markets and industries compete with one another by factoring in real-world complications, such as government intervention in the marketplace, transaction costs, barriers to entry and more.