Industrial Organization Assignment Help
About Industrial Organization
Theoretical and empirical analysis of contemporary topics in industrial organization is done on this subject. Uses economic theory to analyze important issues facing firms, and examines the practical challenges of empirical applications of theory.
What do you mean by Industrial Organization?
Industrial organization or also known by the name of the industrial economy is a prominent field in economics. It builds on the major theory of the organization by examining and analyzing the structure of the markets and firms and also the boundaries between them. The industrial organization helps in coping with the real-world complications to the perfectly competitive model. These complications include limited information, transaction costs and barriers to entry of new organizations, that may be directly related to imperfect competition. It studies and analyzes determinants of organization and market structure and behavior as between monopoly and competition, including from the actions of the government. An industrial organization is basically a field of economics which deals with the strategic behavior of organizations, antitrust policy, regulatory policy and market competition. The industrial organization applies the basic and standard economic theory regarding the model of price to industries. The popular economists and trade experts, who research in the field of industrial organization seek to increase understanding of the methods and techniques by which industries operate, and to improve industries' contributions to the welfare of the economy, and improve government policy in relation to these industries.
The study in the field of industrial organization builds on the theory of the organization, a set of economic theories that describe, explain and attempt to predict the nature of an organization in terms of its history, nature, structure and its relationship to the market.
There are various different approaches to the subject. One of the popular approaches is descriptive in providing an overview of industrial organization fields, such as the level of competition and the size of the organization in an industry. A second aspect uses microeconomic elements or models to explain the internal firm organization and market strategy, which includes development and internal research along with issues of renewal and internal reorganization. A third approach is dedicated to public policy as to economic regulation, antitrust law, and more generally, the economic governance of law in defining property rights, providing organizational infrastructure, and enforcing contracts. It can play the role of a microeconomic model which can explain the internal firm organization and market strategy, including internal research and development. Another approach could be towards the economic policy so as to describe the economic regulations, antitrust laws and towards the economic governance of law which defines the property rights, enforcement of contracts and providing organizational infrastructure. In 1972, the Industrial Organization Society was formed which helps in understanding this field better. The IOS was founded by Willard Mueller and Stanley Boyle. The subject has a theoretical side and a practical side.
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. This focuses with a monopsony which relates to a single force's control of a market industry to purchase a good or a service, and with oligopoly which consists of a few sellers dominating a market. Monopoly industry is thus characterized by a lack of viable substitute goods, lack of competition in the market to produce the good or service and also a good possibility to charge higher marginal price than usual due to the sole presence in the market. This will eventually lead to high profit. The verb monopolises simply means the process by which a company gains the ability to raise prices or to eradicate the probable competitors. There are different definitions to a monopoly in different fields, like in economics, a monopoly is a single seller selling a good or a service, in law, a monopoly is a business entity that has a special market power, that is, the power to charge overly high prices. Size may not be a characteristic of a monopoly even as we know it is a big business. A small business may still have the power to raise prices in a small industry or market.
A duopoly is a form of market industry where only two sellers exist in one market. This term is also used where two firms have equal dominant control over a market place. It is the most commonly studied form of oligopoly due to its simple and standard nature. There are two principal duopoly models, Cournot duopoly and Bertrand duopoly:
- The Cournot model shows that two organizations assume each other's output and treat this as a fixed point, and produce in their own organization according to this.
- The Bertrand model is the duopoly model in which, in a game of two organizations, each one of them will assume that the other will not change prices in response to its price reduction. When both the organizations use this logic, they will reach a Nash equilibrium.
Characteristics of duopoly
- Only two sellers exist in the market
- Independent characteristic
- Presence of monopoly factors: so long products are differentiated, the firms enjoy some monopoly power, as each product will have some loyal customers
- There are two popular modes of duopoly that are Chamberlain’s Model and Cournot’s Model
In general equilibrium theory and economics, a perfect market is defined by several pointers which are collectively called as the perfect competition. These pointers are:
- A large number of buyers and sellers – A large number of consumers with the willingness and ability to buy the product at a certain price, and a large number of producers with the willingness and ability to supply the product at a certain price.
- Perfect information – All consumers and producers know all prices of products and utilities each person would get from owning each product.
- Homogeneous products – The products are perfect substitutes for each other,
- Well defined property rights – These determine what may be sold, as well as what rights are conferred on the buyer.
- No barriers to entry or exit
- Every participant is a price taker – No participant with market power to set prices
- Perfect factor mobility – Factors of production are perfectly mobile in the long run. This allows free long term adjustments for the course of changing market status.
- Profit maximization of sellers – companies sell where the most profit is generated, it is where marginal costs are equal to marginal revenue.
- Rational buyers- Buyers make all the suitable trades that increase their economic utility as well capability and also consider making no trades that do not increase their utility.
An oligopoly is a market form wherein a market or industry is dominated by a small number of sellers and is called oligopolists. Oligopoly market firm can result from various forms of collusion which reduce competition as well as increase footfall and lead to higher prices for consumers. Oligopoly has its own market structure and market elements.
With few sellers, each oligopoly market firm is likely to be aware of the other oligopoly firm’s action. According to economics’ game theory, the decisions and strategy of one firm therefore influence and are influenced by decisions of other firms. The indecisive planning by oligopolists needs to take into account and the immediate responses of the other market participants.
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