Market structure

About: Market structure is a research topic. Over the lifetime, 9697 publications have been published within this topic receiving 316831 citations. The topic is also known as: market forms.

An Evolutionary Theory of Economic Change

Abstract: This study develops an evolutionary theory of the capabilities and behavior of business firms operating in a market environment. It includes both general discussion and the manipulation of specific simulation models consistent with that theory. The analysis outlines the differences between an evolutionary theory of organizational and industrial change and a neoclassical microeconomic theory. The antecedents to the former are studies by economists like Schumpeter (1934) and Alchian (1950). It is contrasted with the orthodox theory in the following aspects: while the evolutionary theory views firms as motivated by profit, their actions are not assumed to be profit maximizing, as in orthodox theory; the evolutionary theory stresses the tendency of most profitable firms to drive other firms out of business, but, in contrast to orthodox theory, does not concentrate on the state of industry equilibrium; and evolutionary theory is related to behavioral theory: it views firms, at any given time, as having certain capabilities and decision rules, as well as engaging in various ‘search' operations, which determines their behavior; while orthodox theory views firm behavior as relying on the use of the usual calculus maximization techniques. The theory is then made operational by the use of simulation methods. These models use Markov processes and analyze selection equilibrium, responses to changing factor prices, economic growth with endogenous technical change, Schumpeterian competition, and Schumpeterian tradeoff between static Pareto-efficiency and innovation. The study's discussion of search behavior complicates the evolutionary theory. With search, the decision making process in a firm relies as much on past experience as on innovative alternatives to past behavior. This view combines Darwinian and Lamarkian views on evolution; firms are seen as both passive with regard to their environment, and actively seeking alternatives that affect their environment. The simulation techniques used to model Schumpeterian competition reveal that there are usually winners and losers in industries, and that the high productivity and profitability of winners confer advantages that make further success more likely, while decline breeds further decline. This process creates a tendency for concentration to develop even in an industry initially composed of many equal-sized firms. However, the experiments conducted reveal that the growth of concentration is not inevitable; for example, it tends to be smaller when firms focus their searches on imitating rather than innovating. At the same time, industries with rapid technological change tend to grow more concentrated than those with slower progress. The abstract model of Schumpeterian competition presented in the study also allows to see more clearly the public policy issues concerning the relationship between technical progress and market structure. The analysis addresses the pervasive question of whether industry concentration, with its associated monopoly profits and reduced social welfare, is a necessary cost if societies are to obtain the benefits of technological innovation. (AT)

Information and Consumer Behavior

Abstract: Consumers are continually making choices among products, the consequences of which they are but dimly aware. Not only do consumers lack full information about the prices of goods, but their information is probably even poorer about the quality variation of products simply because the latter information is more difficult to obtain. One can, for example, readily determine the price of a television set; it is more difficult to determine its performance characteristics under various conditions or its expected need for repairs. This article contends that limitations of consumer information about quality have profound effects upon the market structure of consumer goods. In particular, monopoly power for a consumer good will be greater if consumers know about the quality of only a few brands of that good. This is a significant departure from the literature. Economists have long been interested in the determinants of monopoly power, but studies have always concentrated on the production function or market-size variables. I try to show that consumer behavior is also relevant to the determination of monopoly power in consumer industries. Location theory has also ignored the consumer's lack of information. Since many trips to a store are, in part, quests for information, the location of retail stores can be profoundly affected by consumer efforts to acquire information. I shall also try to show that advertising and inventory policy are affected by consumer ignorance about quality differences among brands. All of these impacts of consumer ignorance have remained unexplored because economists have not developed a systematic analysis of consumer quests for information about quality differences. Information about quality differs from information about price because the former is usually more expensive to buy than the latter. Indeed this is one reason we expect the variance in the utility of quality facing a consumer to be greater than the variance in the utility of price. This difference in the price of information can lead to fundamentally

Markets and hierarchies, analysis and antitrust implications : a study in the economics of internal organization

Abstract: This study analyzes organization of economic activity within and between markets and hierarchies. It considers the transaction to be the ultimate unit of microeconomic analysis, and defines hierarchical transactions as ones for which a single administrative entity spans both sides of the transaction, some form of subordination prevails and, typically, consolidated ownership obtains. Discusses the advantages of the transactional approach by examining three issues: price discrimination, insurance, and vertical integration. Develops the concept of the organizational failure framework, and demonstrates why it is always the combination of human with environmental factors, not either taken by itself, that causes transactional problems. The study also describes each of the transactional relations of interest, and presents the advantages of internal organization with respect to the transactional condition. The analysis explains why primary work groups of the peer group and simple hierarchy types arise. The same transactional factor which impede autonomous contracting between individuals also impede market exchange between technologically separable work groups. Peer groups can be understood as an internal organizational response to the frictions of intermediate product markets, while conglomerate organization can be seen as a response to failures in the capital market. In both contexts, the same human factors, such as bounded rationality and opportunism, occur. Examines the reasons for and properties of the employment relation, which is commonly associated with voluntary subordination. The analysis attempts better to assess the employment relation in circumstances where workers acquire, during the course of the employment, significant job-specific skills and knowledge. The study compares alternative labor-contracting modes and demonstrates that collective organization is helpful in enhancing the acquisition of idiosyncratic knowledge and skills by the work force. The study then examines more complex structures -- the movement from simple hierarchies to the vertical integration of firms, then multidivisional structures, conglomerates, monopolies and oligopolies. Discusses the market structure in relation to technical and organizational innovation. The study proposes a systems approach to the innovation process. Its purpose is to permit the realization of the distinctive advantages of both small and large firms which apply at different stages of the innovation process. The analysis also examines the relation of organizational innovation to technological innovation. (AT)

Entry, Exit, Growth, and Innovation over the Product Life Cycle

Abstract: Regularities concerning how entry, exit, market structure, and innovation vary from the birth of technologically progressive industries through maturity are summarized. A model emphasizing differences in firm innovative capabilities and the importance of firm size in appropriating the returns from innovation is developed to explain the regularities. The model also explains regularities regarding the relationship within industries between firm size and firm innovative effort, innovative productivity, cost, and profitability. It predicts that over time firms devote more effort to process innovation but the number of firms and the rate and diversity of product innovation eventually wither.