What is Industrial Organization

Industrial organization is a field of economics dealing with the strategic behavior of firms, regulatory policy, antitrust policy and market competition. Industrial organization applies the economic theory of price to industries. Economists and other academics who study industrial organization seek to increase understanding of the methods by which industries operate, improve industries' contributions to economic welfare, and improve government policy in relation to these industries. 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."

BREAKING DOWN Industrial Organization

The study of industrial organization 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. Above all, 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.

Some believe that since microeconomics focuses on markets and how they operate, industrial organization is a subset of it. Rather, industrial organization is defined by its emphasis on market interactions, such as price competition, product placing, advertising, research and development and more. More pertinently, the study of oligopolies (where a handful of big players dominate a market) gives industrial organization its reason for being (whereas microeconomics focuses on perfect competition or extreme monopolies). According to a Massachusetts Institute of Technology (MIT) white paper, it is easier to give an example of industrial organization than it is to define it, though the white paper's authors still managed to come up with this description: the "economics of imperfect competition."

Industrial Organization Areas of Study

Below is a sample listing of topics that the study of industrial organization 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

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. The IOS has sponsored an annual International Industrial Organization Conference since 2003.