1 A. Introduction 1.Object of study: firms, markets and systems; structures and behaviour 1.1. Object of the Firm and Industrial Economics 1.2. Basic concepts of the subject 2. Past and future of the subject: from the traditional paradigm to the recent developments 2.1. The methodology of the Industrial and Firm Economics 2.2. The relation structure, conduct and performance 2.3. Recent developments and trends of the discipline

2 A. Introduction 1.Object of study: firms, markets and systems; structures and conduct 1.1. Object of the Firm and Industrial Economics 1.2. Basic concepts of the subject

Object of the Industrial and Firm Economics Analysis of the functioning of the industrial system and of the internal organization of the firm. “Industrial System”: - Sets of agents and functioning rules; - Structures: organizational forms, sectors/ markets, clusters,... “Firm”: - Internal structure of the firm; culture; power; strategy and incentives “Functioning”: - behaviour - interaction - performance

Basic concepts of the subject i) Structure ii) Conduct iii) Performance Industry Sector Market (perfect conpetition, monopoly, oligopoly, monopolistic competition) Firm number and size distribution of buyers and sellers Entry and exit conditions Product differentiation Vertical integration and diversification i) Structure

5 Industry / Sector: Set of agents (producers / sellers) that produce/supply a good with a certain degree of homogeneity Note: Stress on the supply side. Problems in the definition of the concept of Industry / Market Geographic extension (regional, national, global ) Time definition: static versus dynamic analysis; process of change (products, technologies, industries) Differenciation / heterogeneity of the products (difficulty in determining borders, insufficiency of the cross elasticities)

6 Problems in the definition of the concept of Industry / Market (cont.) Diversification of the industries Difficulties of statistical classification (industrial statistics are based on the main activity of the firm; statistics of the international trade based in the product) Vertical and horizontal relationships (frontiers of firms become faint) Market Set of sellers/buyers that organise transactions of a given good/service.

7 ii) “Conduct” Business objectives Pricing policies Innovation (technological, organizacional... ) R&D Product design, branding, advertising and marketing Firm Culture and Firm Power Collusion Merger

8 iii) “Performance” Profitability Growth Quality of products and service Technological progress Productive and allocative efficiency Some examples of the issues that are studied: Determinants of performance Problems in the definition of performance measures - unit: Firm ? Industry ? Region ? Influence of internal and external factors on performance

9 2. Past and future of the subject: from the traditional paradigm to the recent developments 2.1. The methodology of the Industrial and Firm Economics 2.2. The relation structure, conduct and performance 2.3. Recent developments and trends of the discipline

The methodology of the Industrial and Firm Economics For many years, the subject was characterized by: Empirical emphasis: analysis of the market structure, concentration and market power Theoretical inspiration: paradigm S-C-P (structure-conduct- performance) Normative focus: Anti-trust policy.

11 Lately: Approximation to the microeconomic theory; Development of positive approaches... But simultaneously: Deepening of the interactions with Law, Political Science and Organization Sociology (contracts, property rights, role of regulation, institutional analysis) Empirical and conceptual approaches

The relation structure, conduct and performance This relationship is the spinal chord of Industrial and Firm Economics. The relationship was viewed as linear and unidirectional. Structure Conduct Performance However: Progressively a less unidirectional vision is adopted Feedback between each level is admited Other factores are taken in consideration

13 Basic Conditions Technology and Demand Conduct Prices, Advertising, R&D, design/conception product, contracts, mergers and acquisitions, collusion, investment, etc. Structure Static and dynamic analysis Performance Dynamic and static efficiency, equity. Public Policy Regulation, competition policy macroeconomic policy, incentive for investiment, etc.

Recent developments and trends of the discipline Recent developments of Industrial and Firm Economics: New approaches to define and study industries Shift from the study of the industries to the study of single firms and interactions among them Consideration of agents within the industrial environment

15 Policy Trends: Compensation of market failures and system failures Improvement of the competition environment in order to stimulate efficiency Reduction of barriers to entry and exit; stimulus to resource mobility Improvements in existing regulation Improvement of the firm environment with the supply of information and support services.