INDUSTRIAL

ECONOMICS
Dr Rakesh Kumar Sharma
SBSBS, Thapar University Patiala
 Industrial Organization
• “Industrial organization is concerned with
the workings of markets and industries, in
particular the way firms compete with each
other.”
 Definition
• “Industrial organization or industrial
economics is the study of the operation and
performance of imperfectly competitive
markets and the behavior of firms in these
markets.”
• Church & Ware (2000)
 Definition -IO
“The main reason for considering industrial
organization as a separate subject is its
emphasis on the study of the firm strategies
that are characteristic of market interaction:
price competition, product positioning,
advertising, research and development, and
so forth …”
 Definition-IO
• “…Moreover, whereas microeconomics
typically focuses on the extreme cases of
monopoly and perfect competition,
industrial organization is concerned
primarily with the intermediate case of
oligopoly, that is, competition between a
few firms.” (Cabral)
 Industrial Economics: Meaning
• Industrial economics is a distinctive branch of
economics which deals with the economic
problems of firms and industries, and their
relationship with society. In economic literature it
is known by several names with marginal
differences such as ‘Economics of Industries’,
‘Industry and Trade’, ‘Industrial Organization and
Policy’, ‘Commerce’ and ‘Business Economics’
etc.
Elements of Industrial Economics
• First Element Descriptive Element
• The descriptive element, It aims at providing the
industrialist or businessman with a survey of the
industrial and commercial organizations of his
own country and of the other countries with which
he might come in contact.
 Elements Contd……
• In short, it deals with the information about
the competitors, natural resources,
infrastructure and factors of production and
government rules and regulations related to
the concerned industry.
 Elements Contd……
• Second Element Business Policy and
Decision-Making.
• This is the analytical part dealing with topics such
as market analysis, pricing, choice of techniques,
location of plant, investment planning, hiring and
firing of labour, financial decisions, product
diversification and so on.
 SCP Approach contd.
• Components that make up the structure, conduct,
and performance model for industrial organization
include:
1. Basic conditions: consumer demand, production,
elasticity of demand, technology, substitutes, raw
materials, seasonality, unionization, rate of
growth, product durability, location, scale of
economies, method of purchase, scope economies
 SCP Approach contd……….
2. Structure: number of buyers and sellers, barriers
to entry of new firms, product differentiation,
vertical integration, diversification
3. Conduct: advertising, research and development,
pricing behavior, plant investment, legal tactics,
product choice, collusion, merger and contracts
 SCP Approach Contd….
• Performance: price, production efficiency,
allocative efficiency, equity, product quality,
technical progress, profits
• Government policy: government regulation,
barriers to entry, taxes and subsidies, investment
incentives, employment incentives,
macroeconomic policies