Formation of the economy of sectoral markets as a science in brief. Stages of development of the theory of industrial markets
As an independent section economic theory economy sectoral markets formed at the beginning of the second half of the 20th century, although interest in the economic behavior of firms and the development of industries arose much earlier.
In the development of the economy of sectoral markets, two main directions can be distinguished:
Empirical (observation of the development and real behavior of firms, generalization of practical experience);
Theoretical (construction of theoretical models of the behavior of firms in market conditions).
In the history of development, the following stages can be distinguished.
Stage I. Market structure theory (1880-1910)
In the early 1880s. The works of Jewons were published, which gave impetus to the development of the theoretical direction of the economy of sectoral markets and were devoted to the analysis of the basic microeconomic models of the market (perfect competition, pure monopoly), the main purpose of which was to explain the efficiency of the market mechanism and the inefficiency of monopolies. The impetus for the development of research in this direction in the United States was given by the formation of the first federal regulatory bodies and the adoption of antimonopoly legislation. In addition to the work of Jevons, one can also highlight the work of Edgeworth and Marshall.
The impetus for the development of applied empirical studies of industrial markets was given by the works of Clark, published in the early 20th century.
However, the studies carried out at this stage were based on overly simplified models that do not correspond to reality, especially in terms of the behavior of oligopolistic firms in the market for differentiated products. Strengthening the processes of concentration of production in most sectors of the economy of developed countries and differentiation of products led to the transition to the second stage.
Stage II. Market research with product differentiation (1920-1950)
Under the influence of changing business conditions in developed countries in 1920-1930, a new theoretical concept of market analysis appeared. In the 1920s. the works of Knight and Sraffa are published. In the 1930s. the work of Hotelling and Chamberlin on modeling differentiated product markets.
Some of the first works devoted to the analysis of oligopolistic markets were published in 1932-33. Chamberlin's Theory of Monopoly Competition, Robinson's The Economic Theory of Imperfect Competition, and Modern Corporation and Private Property by Berle and Means. These works formed the theoretical basis for the analysis of industry markets.
In 1930-1940. on the basis of the theoretical base formed by these works, there is a rapid development of empirical research (Berle and Means, Allen and S. Florence, etc.).
A certain impetus to the development of research was also given by the Great Depression, which caused the need to re-evaluate the actual role of competition in the operation of the market mechanism.
Stage III. Systems Analysis of Industry Markets (1950s - Present)
Within this stage, the formation of the economy of sectoral markets takes place as an independent section of economic theory. In the 1950s. E.S. Mason proposed the classic structure-behavior-performance paradigm, later supplemented by Bain. In the mid-1950s. the first textbook on the economics of industrial markets is published.
In the 1960s. theoretical studies of Lankaster and Marris appear.
Since the 1970s. there is an increase in interest in the economics of sectoral markets, caused by:
1) increased criticism of efficiency state regulation, a departure from direct regulation to antimonopoly policy;
2) the development of international trade and the strengthening of the impact of the market structure on the terms of trade;
3) growing doubts about the adaptive ability of firms in changing market conditions.
Since the 1970s. the methods of game theory are being integrated into the methodological apparatus of the economics of sectoral markets, and there are studies devoted to the problems of cooperative agreements, asymmetry of information and incompleteness of contracts.
Modern research in the economics of sectoral markets can be conditionally divided into two main areas, differing in the methodology used:
1) Harvard School based on systems analysis of industry markets using an empirical basis;
2) the Chicago school, based on a rigorous analysis of dependencies based on the construction of theoretical models.
The history of the development of the economy of industrial markets
As an independent section of economic theory, the economy of industrial markets was formed at the beginning of the second half of the 20th century, although interest in the economic behavior of firms and the development of industries emerged much earlier.
In the development of the economy of sectoral markets, two main directions can be distinguished:
Empirical (observation of the development and real behavior of firms, generalization of practical experience);
Theoretical (construction of theoretical models of the behavior of firms in market conditions).
In the history of development, the following stages can be distinguished.
Stage I. Market structure theory (1880-1910)
In the early 1880s. work came out William Jevons but ( William jevons), which gave impetus to the development of the theoretical direction of the economy of sectoral markets and were devoted to the analysis of basic microeconomic market models (perfect competition, pure monopoly), the main purpose of which was to explain the efficiency of the market mechanism and the inefficiency of monopolies. The impetus for the development of research in this direction in the United States was given by the formation of the first federal regulatory bodies and the adoption of antimonopoly legislation. In addition to the works of Jevons, one can also highlight the works of Francis Edgeworth ( Francis Edgeworth) and Alfred Marshall ( Alfred marshall).
Alfred Marshall initiated the technological concept of competition. Explaining the benefits of large-scale production, Marshall stresses the link between economies of scale and production concentration.
The impetus for the development of applied empirical studies of industrial markets was given by the works of John Clarke ( John clark), published at the beginning of the 20th century. By this time, a static model of competition and monopoly as two polar states of the market has been formed and approved in economic science, so that there are no intermediate states between them, as it were.
However, the studies carried out at this stage were based on overly simplified models that do not correspond to reality, especially in terms of the behavior of oligopolistic firms in the market for differentiated products. Strengthening the processes of concentration of production in most sectors of the economy of developed countries and differentiation of products led to the transition to the second stage.
Stage II. Market research with product differentiation (1920-1950)
Under the influence of changing economic conditions in developed countries in 1920-1930, a new theoretical concept of market analysis appeared. In the 1920s. the works of Frank Knight come out ( Frank knight) and Piero Sraffa ( Piero sraffa). In the 1930s. works by Harold Hotelling ( Harold hotelling) and Edward Chamberlin ( Edward chamberlin) devoted to modeling markets with differentiated products.
Some of the first works devoted to the analysis of oligopolistic markets were published in 1932-33. “The Theory of Monopolistic Competition” by Edward Chamberlin, “The Economic Theory of Imperfect Competition” by Joan Robinson ( Joan robinson).
Joan Robinson clearly identified the scope of analysis, defining an industry that continues to underpin the theory of market organization and recognizes the diversity of firms' behavioral activities. This is not only competition and monopoly, as previously thought, but also various other options for market power - competition between producers of a differentiated product and price discrimination. Since then, the notion has been asserted that competition can exist even if firms have market power, which is exactly what the term “imperfect competition” means.
Contribution Edward Chamberlin in the theory of imperfect competition lies, first of all, in the fact that he was the first to introduce the concept of "monopolistic competition" into economic theory. This was a challenge to traditional economics, according to which competition and monopoly are mutually exclusive concepts, and which proposed to explain market prices either in terms of competition or in terms of monopoly. According to Chamberlin, most economic situations are phenomena that include both competition and monopoly. Chamberlin's model assumes a market structure in which elements of competition (a large number of firms, their independence from each other, free access to the market) are combined with elements of monopoly (buyers give a clear preference for a number of products for which they are willing to pay an increased price). the beginning of the study of competition as a dynamic process by its nature. In such a system, both perfect competition and perfect monopoly turn out to be only moments of a single process of market development, “... in the entire price system, the forces of competition and monopoly are inextricably intertwined into a single fabric, differing in it only by their special patterns ...”.
A certain impetus to the development of research was also given by the Great Depression, which caused the need to re-evaluate the actual role of competition in the operation of the market mechanism.
In 1930-1940. on the basis of the theoretical base formed by these works, empirical research is developing rapidly. Since that time, economic theory gradually begins to establish the position of a direct relationship between the level of concentration in the market (the number of sellers), the level of the market price and the value of the monopoly profit of each seller. So now the antimonopoly authorities have at their disposal a certain quantitative parameter that is convenient for conducting competition policy - the number of firms on the market. A mechanistic idea of monopoly and competition in the market is emerging - the fewer firms operate in the market, the stronger their monopoly power - this is the logic that guides the antitrust policy. In particular, this criterion underlies the policy of admitting or prohibiting mergers and acquisitions adopted in the United States.
Costs and profits of the firm
All-Russian Classifier of Economic Activities (OKVED)
OKVED was put into effect on 1.01.2003 and is intended to ensure the reliability of the reflection of the existing economic infrastructure of the country and the possibility of making international comparisons of the sectoral structure of the economy.
Simply put, OKVED is a collection of activity codes for entrepreneurs, where the code means the type of activity, the sphere of production or the provision of services (Table 3.4). With his help:
The state determines the optimal size tax rate entrepreneur;
Collects and analyzes statistical information about each type of activity and type of enterprise;
More simply classifies the type of activity and “encrypts” data about it.
Table 3.4 - All-Russian classifier of economic activities
Section | Name |
Section A | Agriculture, hunting and forestry |
Section B | Fishing, fish farming |
Section C | Mining |
Subsection CA | Extraction of fuel and energy minerals |
Subsection CB | Extraction of minerals, except for fuel and energy |
Section D | Manufacturing industries |
Subsection DA | Manufacture of food products, beverages, and tobacco |
Subsection DB | Textile and clothing production |
Subsection DC | Manufacture of leather, leather goods and footwear |
DD Subsection | Wood processing and production of wood products |
Subsection DE | Pulp and paper production; publishing and printing activities |
Subsection DF | Production of coke, petroleum products and nuclear materials |
Subsection DG | Chemical production |
Subsection DH | Manufacture of rubber and plastic products |
Subsection DI | Manufacture of other non-metallic mineral products |
Subsection DJ | Metallurgical production and production of finished metal products |
Subsection DK | Manufacture of machinery and equipment |
Subsection DL | Manufacture of electrical equipment, electronic and optical equipment |
Subsection DM | Production Vehicle and equipment |
Subsection DN | Other production |
Section E | Production and distribution of electricity, gas and water |
Section F | Building |
Section G | Wholesale and retail; repair of vehicles, motorcycles, household goods and personal items |
Section H | Hotels and restaurants |
Section I | Transport and communication |
Section J | Financial activities |
Section K | Operations with real estate, rental and provision of services |
Section L | Public administration and ensuring military security; compulsory social security |
Section M | Education |
Section N | Health care and social services |
Section O | Provision of other communal, social and personal services |
Section P | Providing household services |
Section Q | Activities of extraterritorial organizations |
The classification of an enterprise according to OKVED is not affected either by the form of its ownership (the activity codes are the same for both individual entrepreneurs and LLC), or the source of investment.
The OKVED classifier includes almost all types of activities permitted on the territory of Russia. Therefore, there are a lot of codes in the reference book, and for the convenience of classifying and using codes, a special structure has been developed that looks like this:
XX. - class;
XX.X - subclass;
XX.XX - group;
XX.XX.X - subgroup;
XX.XX.XX - view.
However, it should be noted that the approach to the use of industry classifiers cannot be formal. Often, close substitute products are produced by enterprises belonging to various industries. (An example is the production of consumer goods by defense enterprises of the USSR.) And vice versa, goods belonging to one industrial group are intended for different groups of consumers and have fundamentally different product boundaries. (The grouping “OKP code 025000” unites goods under the general name “Oil products”: gasoline, kerosene, diesel fuel, fuel oil, oils, etc.) Note again that the industry groups enterprises by production principle, while the market - according to the commonality of consumer properties and demand.
Market classification
Depending on the purpose economic analysis distinguish the following types of markets.
By objects of commercial transactions Markets can be categorized as:
Markets for goods and services (coffee market, car market);
Factor markets, or resource markets (labor market, capital market, raw materials market);
Money and finance markets (stock market, bond market).
Commodity (food) markets operate with tangible (goods) and intangible (services) objects that are included in the final consumption of buyers. Resource markets arise where buyers purchase goods for subsequent use in production (equipment markets, commodity markets), which is an intermediate product for the economy as a whole, or to generate income (real estate market, including the housing market). A special resource market is the labor market - an institution within which individuals offer their skills and qualifications as an object of purchase and sale. Financial markets regulate cash flows between economic agents both in the form of cash and in the form of other, more complex financial instruments - stocks, bonds, derivatives financial instruments, shares, bank accounts, etc.
By the level of standardization of the product (service) markets are subdivided:
To the markets of a homogeneous product;
Markets for differentiated goods.
Markets for a homogeneous product assume that consumers generally assess the types of products sold as having no fundamental differences among themselves. Typically, uniformity occurs primarily where it comes about the physical properties of the product. For example, standard exchange deliveries, many types of raw materials and minerals, agricultural crops can be attributed to homogeneous product groups. However, even if products differ from each other in their shape, characteristics or appearance (packaging), but consumers do not consider these differences significant and significant for themselves, then such products in the economic sense will also be classified as homogeneous.
Differentiated product markets involve special properties of products that make product varieties specific to consumers. Therefore, there is no more single product market - it is now splitting into many differentiated segments, each of which has buyers loyal to “their” brand of goods. Examples of differentiated product markets include the many varieties of dairy and yoghurt, chocolates, juices, and household appliances, clothing and hygiene products.
By type of buyer markets include:
To consumer goods markets;
Markets for industrial goods (means of production).
In consumer goods markets, there are firms that supply their products to an individual consumer for final consumption. In industrial markets, both consumers and sellers are generally companies that legal entities producing and purchasing goods for their subsequent participation in the production process.
By the presence and size of entry barriers allocate:
5 markets without barriers to entry with an unlimited number of participants;
6 markets with moderate barriers to entry and a limited number of participants;
7 markets with high barriers to entry and a small number of participants;
8 markets with blocked entry and constant number of participants.
In those markets where there are no entry barriers, there is a complete mobility of resources. Capital and labor move freely between industries, and the number of market agents can continuously change: some firms enter the market, others leave the market. The higher the entry barriers, the fewer participants will be able to organize a break-even production in the industry.
By degree of controllability market process on the part of the market participants themselves, markets subdivide
To organized markets;
Spontaneous (unorganized) markets.
In organized markets, there is a special mechanism for coordinating supply and demand by private agents. This is how numerous auctions, tenders, commodity and financial exchanges operate. All other markets are unorganized, where, except for the state, there are no special institutions for comparing the volumes of sales and volumes of purchases, the market price is formed gradually, over a long period. Individual market participants set prices and estimate the volumes of optimal output independently, outside of any private regulatory body.
By scale of operations participants among the markets are:
Local (local) markets;
Regional markets;
National markets;
International markets;
Global Markets.
Local markets operate on the smallest scale, within a district, city, region, or even one retail outlet in the area. With a significant increase in the number of sellers and buyers, one can speak of a regional market. The national market arises when sales and purchases cover the entire country. If trading operations are outside the boundaries of one country, there is international market... For example, the European market, the North American market, and the Asian market can be distinguished as the international market. When market participants cover the most diverse regions and continents with their actions, and their scale covers the entire planet, we are talking about a global market. Global markets primarily include many resource markets (oil and gas market, copper market, gold market), foreign exchange and financial markets as well as some commodity markets (aircraft market, ship market)
TO special kind market classifications include types of market structures.
Types of market structures
Structure the commodity market determines the behavior of the firm, the nature of its interaction with other market participants. Traditionally, the main criterion for classifying the interaction of firms is degree of competition On the market. Usually allocate three broad categories of markets : a market of perfect competition with a maximum degree of competitive interactions, a monopoly market with a minimum degree of competition, and a market of imperfect competition, where competition is present, but its action is distorted by the behavior of economic agents.
Perfect competition
Perfect competition is defined differently by different authors. One of the most successful definitions offered by Joan Robinson: “Perfect competition prevails when the demand for the products of each manufacturer is absolutely elastic. From this it follows, firstly, that the number of sellers is large and the volume of production of any of them is a negligible fraction of total output this product; second, that all buyers are in the same position with regard to the ability to choose between competing sellers, so that the market is dominated by a relationship of perfect competition ”.
The perfect competition model is characterized by some features.
The presence of a large number of economic agents: sellers and buyers. A large number means that even large buyers and manufacturers present such volumes of supply and demand that are negligible on the scale of the market.
The product on the market is so homogeneous that none of the sellers can stand out by the special properties of their products, all units of the product are absolutely identical in the buyer's mind.
Free entry and exit from the market, that is, the absence of any barriers.
Perfect awareness of sellers and buyers about goods and prices, that is, market participants have perfect knowledge of all market parameters, since information is disseminated instantly.
Competitive behavior implies that the market completely determines the parameters of the firm's behavior (the most important of which is price). The firm is entirely subordinate to the market, is price taker ... The degree of the firm's influence on the market is minimal (or equal to zero). The interaction of firms-price recipients gives the highest degree of competition. However, on the other hand, one cannot speak here in the strict sense of the interaction of firms, since firms passively respond to changes in the economic environment.
None of the buyers and sellers are able to influence the market price, since the share of each firm in the market of the industry is insignificant, therefore the demand curve D a separate firm is horizontal (that is, completely elastic). A perfect competitor can sell any number of products at a price P installed on the market. Wherein additional income MR, received from the sale of each additional unit of production, exactly corresponds to its market price (Fig. 3.2).
Fig. 3.2 - Demand for the products of a competitive firm
The advantages of perfect competition:
Perfect competition forces firms to produce products with minimal average costs AC and sell it for a price corresponding to these costs. Graphically, this means that the average cost curve only touches the demand curve. If the cost of producing a unit of output were higher than the price ( AC > P), then any product would be economically unprofitable, and firms would be forced to leave the industry. If average costs were below the demand curve, and, accordingly, prices ( AC < P), this would mean that the average cost curve crosses the demand curve and a certain volume of production is formed that brings superprofits. An influx of new firms would nullify these profits. Thus, the curves only touch each other, which creates a situation of long-term equilibrium.
Perfect competition helps to allocate limited resources in such a way as to maximize the satisfaction of needs. This is provided provided that P = MC... This provision means that firms will produce the maximum possible amount of output until the marginal cost of the resource is equal to the price at which it was bought. At the same time, not only high efficiency of resource allocation is achieved, but also maximum production efficiency.
The disadvantages of perfect competition include:
Perfect competition does not provide for the production of public goods, which, although they bring satisfaction to consumers, cannot be clearly divided, evaluated and sold to each consumer separately (piece by piece). This applies to public goods such as fire safety, national defense, etc.
Perfect competition, involving a huge number of firms, is not always able to provide the concentration of resources necessary to accelerate scientific and technological progress. This primarily concerns basic research(which, as a rule, are unprofitable), knowledge-intensive and capital-intensive industries.
Perfect competition promotes product unification and standardization. It does not fully take into account the wide range of consumer choices. Meanwhile, in modern society reaching a high level of consumption, a variety of flavors develop. Consumers are increasingly taking into account not only the utilitarian purpose of a thing, but also pay attention to its design, design, the ability to adapt it to the individual characteristics of each person. All this is possible only in conditions of differentiation of products and services, which is associated, however, with an increase in production costs.
In practice, perfectly competitive markets are rare. These include the markets of some exchange commodities, as well as the interaction of small firms in regional or local markets, markets for agricultural products (grain, potatoes, vegetables); currency market; world market of frozen fish; markets precious metals(gold, silver, platinum).
Monopoly
Monopoly(from others - Greek μονο - one and πωλέω - I sell) is a type of industry market in which the only seller of goods that does not have close substitutes operates, independently exercising control over the price and volumes of output, which allows obtaining monopoly profits. In conditions of pure monopoly, the industry, as a rule, consists of one firm, that is, the concepts of “firm” and “industry” coincide. A pure monopoly usually arises where there are no real alternatives, there are no close substitutes, the manufactured product is to a certain extent unique, and the barriers to entry into the industry are high. This may be due to economies of scale (as in the automotive industry), to natural monopoly (like De Beers, which monopolized the largest diamond markets in South Africa and controls the global diamond market).
The characteristic features of monopoly are highlighted.
9 Lack of perfect substitutes for the product. A monopoly enterprise can produce homogeneous or differentiated products, but in any case, these products do not have a perfect substitute from the point of view of the buyer. The cross-elasticity of demand between the products of the monopolist and any other good is either zero or tends to zero. That is, a firm is a pure monopolist if it is the only producer of an economic good that has no close substitutes (substitutes).
10 Lack of freedom of entry to the market, that is, the monopolist can exist while the entry to the market for other enterprises is closed: a monopoly enterprise has a patent for a product, technology, the existence of a government license, quotas, the monopolist's control over any resource of production, the presence of significant savings on the scale of production, allowing the presence of only one supplier on the market, etc. That is, the firm is protected from direct competition by high barriers to entry.
11 One seller is opposed by a large number of buyers.
12 Under a monopoly, price exceeds marginal revenue. If in conditions of perfect competition the firm chooses only the volume of production (the price is set exogenously), then the monopolist can not only determine the volume of production, but also set the price. Consequently, the price exceeds the marginal revenue, i.e. P > MR... The equilibrium of monopoly is observed where the marginal revenue from the sale of a product turns out to be equal to the marginal cost of its production: MR = MC... The monopoly does not arbitrarily set the price: the condition of equality of marginal indicators (additional indicators per unit of output) determines the volume of production and sales of the monopolist, and the market price is set depending on the elasticity of demand in a given market (Figure 3.3).
Fig. 3.3 - Demand and marginal revenue of the firm in a pure monopoly
Monopoly prices are generally considered to be the highest. Indeed, they are, as a rule, higher than the competitive ones, but it should be remembered that the monopolist seeks to maximize the total profit per unit of output. And, most importantly, the rise in prices is not unlimited, it is limited by the price elasticity of demand for the products of a given firm. It is also not entirely true that a monopolist always seeks to restrict output. As the industry monopolizes, costs and demand change. Costs are affected by two directly opposite factors - downward and upward. Decreasing, since as a result of the creation of a monopoly, it is possible to make fuller use of the positive effect from the growth of the scale of production (savings on fixed costs, centralization of supply and sales, savings on marketing operations, etc.). On the other hand, there is also a tendency to increase them, associated with the swelling and bureaucratization of the management apparatus, and the weakening of incentives for innovation and risk. This trend Harvey Leibenstein ( Harvey leibenstein) denoted as X-inefficiency ... According to Leibenstein, X-inefficiency occurs whenever the actual costs for any volume of production are higher than the average total costs. Even with modern competition, X-inefficiency is possible, but such a situation is an exception to the rule, since such firms are doomed to perish.
The pure monopoly market is also relatively rare in reality. However, monopoly effects in the form of a reduction in production and an increase in prices can occur in different industries as a temporary or rather long-term phenomenon.
Examples of a monopoly market: city-forming enterprise; an innovation patent firm (“Microsoft”); prestigious consumer markets (Rolex, Lamborghini), ALROSA - diamond mining in Russia; De Beers - world diamond production; Eurocement Group is the cement market in Russia.
Natural monopoly will be found where there are such market characteristics:
Positive economies of scale in the long run due to technological reasons for the industry;
Large initial capital investment;
Low marginal production costs;
Unprofitable marginal (competitive) pricing.
Examples: electric power industry, pipeline transport, water utility, housing and communal services, railway transport, metro, gas industry.
Along with a monopoly on the part of producers, there is a monopoly on the part of the buyer - monopsony ... Such a buyer is interested and has the opportunity to buy goods at the lowest price (for example, the military industry). More often, the monopsony advantage is realized in local markets.
Quasi-monopoly Markets are considered in which, with a relatively low concentration of sellers, there is monopoly power.
Industry market theory as a science
As a result of studying the topic, the student must: know
The main features of the leading schools and areas of the theory of industrial markets;
be able to
Use different approaches to the study of product markets and areas of production;
own
Market analysis methodology according to the Harvard paradigm.
Course subject and methodology
What is the place of the theory of industrial markets among other economic sciences, what is its subject?
This science has been taught in European and American higher education institutions for several decades. In the United States, this discipline was called Industrial organization, In Great Britain - Economics of industry or Analysis of industry & competition. What does the term mean industry?
In the American Dictionary of English language» ( American dictionary of the English language) H. Webster's word industry translates as:
- 1) a set of industrial enterprises carrying out, in contrast to Agriculture, processing of raw materials;
- 2) view economic activity.
Second understanding of the term industry and corresponds to the subject of science and academic discipline "Theory of industrial markets".
The word "industry" has a wide and narrow meaning, the term industry applies equally to the automotive industry and, say, the insurance market.
In a broad sense, industry is human activity, understood as a craft and aimed at creating, transforming or moving economic benefits. In a narrow sense, industry is the totality of its extractive and manufacturing industries.
In the phrase industrial organization word industry("Industry") is used in a broad sense. The area of interest of the theory of industrial organization is the market of imperfect competition, i.e. the behavior of its participants, the possible result of their interaction, the impact on public welfare and government regulation.
In the foreword of the Russian economist V. Halperin, written to the textbook of Nobel Prize laureate J. Tyrol “Markets and Market Power”, the organization of industry is defined as applied microeconomics or as an application of microeconomics to the study of one side of the market - the supply side, where firms act as sellers.
According to Tyrol, the theory of industrial organization explores three groups of problems:
- 1) the theory of the firm, including its scale, scope, organization and behavior;
- 2) imperfect competition in the market. Thus, the first version of the textbook by J. Tyrol (Paris, 1985) was called Imperfect Competition. The theory of industrial organization examines the conditions for acquiring market power in the market, the forms of its manifestation, factors of preservation and loss, price and non-price competition, which is based on the choice of goods, determination of price and volume of output, advertising, policy of innovations;
- 3) the optimal attitude of society to business. The theory of industrial organization deals with issues of antimonopoly, industrial, innovation policy of the state. In this regard, the questions of how effective is the state's intervention in market relations; who determines the directions and methods of state regulation; whose interests it serves.
The author of the American textbook on the organization of sectoral markets LMB Cabral gives the following definition of the subject of the economics of sectoral markets: "The organization of sectoral markets studies the functioning of markets and industries, especially the way firms function with each other."
The study of market structures and mechanisms is a subject of microeconomics, therefore, some well-known scientists believe that there is no separate science "Industry Markets", that this area of knowledge is just a section of microeconomics. Thus, Nobel Prize laureate (1982) J. Stippler writes in the first chapter of Industrial Organization: “Let's start this book with the greatest possible directness ... there is no such subject as industrial organization. Training courses with this name are aimed at understanding the structure and behavior of industries (producers of goods and services) of the economy. These courses examine the distribution of firms in size, the reasons for such a distribution in size (primarily economies of scale of production), the impact of concentration on competition, the impact of competition on prices, investment, innovation, etc. But this is the content of economic theory, price theory which ... is often called the unfortunate term "microeconomics."
- 1) theoretical courses in microeconomics are very formal and do not include the results of empirical studies of cost curves, concentration, etc .;
- 2) microeconomics cannot interfere in the sphere of politics, in the issues of antitrust regulation, therefore, as Stigler writes, "this dirty work is taken over by the course on the organization of industries."
The difference between microeconomics and the theory of industrial markets is as follows.
Microeconomics
- 1) takes into account the most significant variables in his research;
- 2) creates general models for the functioning of markets.
Industry market theory
- 1) takes into account many additional quantitative and qualitative variables;
- 2) analyzes the functioning of markets, as close as possible to the conditions of the real economy;
- 3) studies the impact of the state on the functioning of markets, the behavior of firms and the results of their activities (takes into account the institutional characteristics of each market, created by structural investment and antimonopoly policies).
Thus, the theory of industrial markets is a relatively new applied direction of economics. It began to form, as will be shown below, in the 1930s-1940s and 1950s-1960s.
Often, economic science is reproached for being disconnected from reality, for the inability to predict and explain important phenomena. public life, to contribute to the solution of serious problems related to the real processes taking place in society - economic crises increasing social inequality, rising unemployment.
The theory of industrial markets as a scientific direction economic thought is, to a certain extent, a response to criticism that modern economics is rejecting important research problems and has become a section of social mathematics with an emasculated content. It not only studies the functioning of specific markets and the behavior of companies in them, but analyzes how the industrial, innovation, and antitrust policy of the state can affect the effectiveness of the development of the industry market and the effectiveness of interaction between companies, which ultimately will contribute to the growth of social welfare.
Let us give the main tasks of the theory of industrial markets.
- 1. For the purpose of analyzing a separate market for a product, it is necessary to determine its boundaries. Without finding out where the boundaries of this market end, the State Antimonopoly Service will not be able to adequately assess the level of market monopolization and take the necessary measures to regulate it.
- 2. Investigate the factors that determine the size of firms in the market. For this purpose, economies of scale of production and product diversity, the effects of vertical integration of firms, and the level of transaction costs are analyzed.
- 3. Find out which element of the market structure is decisive for the formation of the market structure:
- - the level of concentration of buyers and sellers;
- - height of entry and exit barriers;
- - the degree of product differentiation;
- - incentives of firms to vertical integration or mergers;
- - features of state regulation of the market.
- 4. Analyze whether old-timers of the market can prevent newcomers from entering the industry or crowd out competitors. To answer these questions, it is necessary to assess the height and nature of market barriers, to find out whether there is strategic interaction between firms in the market and what are its features: whether it is carried out in the form of a cartel agreement between firms or agreed behavior.
- 5. Investigate what factors are conducive to cartel agreements of firms, and also ensure the stability of the cartel; analyze why cartels are more stable in some industries and, on the contrary, quickly disintegrate in others.
- 6. Investigate what goals are set for modern firms, faced with at least two new problems:
- - growing demands on the part of society for the behavior and performance of companies;
- - increased competition in the market due to the emergence of new information technologies and communication capabilities.
- 7. Show what new strategies of competition are invented by firms in the information economy, what ways of interacting with each other they are looking for.
- 8. To study the features and tendencies of development of antimonopoly, industrial and innovation policy of the state in the information economy; including assessing the process of improving antimonopoly legislation aimed at finding new mechanisms that affect the behavior of companies.
- 9. Analyze the mutual influence of companies and government regulators on each other: on the one hand, antitrust agencies are looking for new ways to collect undeniable evidence of violations of antitrust laws by firms, on the other - firms are looking for options to counter the allegations.
- 10. To present new approaches to the analysis and assessment of damage and benefits that society receives from the activities of large companies in the market.
Stages of the formation of the theory of industrial markets as a science:
1) 1890s - early 1930s - studies by A. Marshall (1890), an English economist, the founder of the neoclassical direction in economic science, and P. Sraffa (1926), an Italian and English economist, who formulated important features of monopolies, their impact on the market and social welfare. So, according to these scientists, if the economies of scale of production of large companies are accompanied by a decrease in prices, then we can talk about the positive impact of monopoly behavior on consumer surplus. On the contrary, if a monopoly, with market power, reduces production and makes profits above normal, then it has a negative impact on social welfare.
Studies of monopoly effects were also carried out in the late 19th - early 20th centuries. JB Clark, American economist, founder of the American school of marginalism, and Charles Bullock, representative of the Harvard School of Economic Theory. Clarke (1887) analyzed the impact of mergers on the level of monopoly in the industry; Bullock (1901) studied the effects of economies of scale within a monopoly;
2) 1930s - researches of E. Chamberlin and J. Robinson in the field of imperfect competition. In 1933, a book was published by the founder of the theory of monopolistic competition, an American economist
E. Chamberlin "The theory of monopolistic competition", which made him famous. Chamberlin's model describes a market structure in which elements of competition (a large number of firms in the market, relatively low barriers to entry) are combined with elements of monopoly (market power of companies due to product differentiation).
In the same year, the work of the English economist, representative of the Cambridge School in political economy, J. Robinson, "The Economic Theory of Imperfect Competition", appeared. She devoted her research to the analysis of the behavior of large companies in a highly concentrated market. Robinson showed that a monopolist can segment the market for his goods depending on the price elasticity of demand, assign a special price to each segment and get the maximum profit - this is price discrimination. Also J. Robinson analyzed the positive and negative effects of price discrimination;
- 3) in the 1950s-1960s. E. Mason and J. Bane, American economists, representatives of the Harvard School of Economic Theory, formulated the famous paradigm "Market Structure - Firms Behavior - Market Performance" ( SCP), which has received the name "Harvard paradigm" in science;
- 4) 1950-1970s- criticism of the Harvard paradigm from the representatives of the Chicago School J. Stigler, G. Demsez and other economists. Intensive criticism of the paradigm at the same time contributed to the formation of new theoretical and applied knowledge in the field of the theory of industrial markets;
- 5) 1980s - present time- convergence between the Harvard and Chicago schools, the study of industry markets in the context of information and global economy, analysis of directions and effects of state regulation of industries.
Summarizing this paragraph, which is devoted to the description of the subject of the theory of industrial markets, we present the definitions of famous scientists who are recognized experts in this field:
- F. Scherer, American economist, professor at Harvard University, and D. Ross, American economist, lecturer at Williams College, authors of the textbook "The Structure of Industrial Markets" (1990), believe that the theory of industrial markets is the science of how, in different market conditions, production activity through the market mechanism aligned with the demand for goods and services, and how market imperfections and changes affect progress made in meeting economic needs;
- R. Coase, American economist and Nobel laureate in economics (1991), writes: “We all know what is meant by the organization of industry. This is a description of how business activities are divided between firms. As you know, some firms carry out a lot different types activities; for others, the range of activities is sharply limited. Some firms are large, others are small. Some firms are vertically integrated, others are not. This is the organization of industry, or, as it is commonly called, the structure of industry. "
Speaking about the subject of the theory of industrial markets, R. Coase makes two important observations:
- 1) the description of the organization of industry presented above reflects the traditional understanding of the subject, suffers from excessive narrowness, “since firms are not the only organizations that carry out economic activities. Part of the task of studying an industrial organization should be a description of the economic activities of government agencies, as well as an explanation of the reasons why economic activity divided between private and government organizations exactly as we see it;
- 2) from the research of the industrial organization I would like to know how the industry is organized now and how it differs from what it was before; what forces created such an organization of industry and how these forces changed over time; how proposals to change - through various changes in laws - the form of industrial organization will affect.
Thus, in our opinion, the remarks of Ronald Coase contain, in our opinion, two directions of further research in the field of the theory of industrial markets:
- 1) interaction of firms and the state; the effectiveness of market and government regulation;
- 2) the current state and development trends of the organization of industries.
- See: V. M. Halperin. Preface by the translation editor // Tyrol J. Markets and market power: the theory of industrial organization. Moscow: NRU HSE Publishing House, 2000. Coase R. Firm, Market and Law. P. 59.
- Coase R. Firm, Market and Law. S. 59-60.
The emergence of the theory of sectoral markets is mainly caused by the strengthening of the role of the state in managing the national economy, which depends on the priority of the development of sectors of the economy (Figure 1.1) and results in
in the formation and implementation of state economic policy... The formation of the economic policy of the state is associated with two aspects of the sectoral organization of the economy:
1) justification of the instruments used by the state to regulate economic activity: tax rates, protectionist measures, subsidies, economic legislation, etc. - for one or another part of the national economy. At the same time, the issue of the degree of state intervention in the economy is being resolved;
2) increasing the effectiveness of the functioning of the national economy. The sectoral structure of the national economy determines foreign economic relations, especially international trade, and affects the policy of the state as a whole.
Fig. 1.1. The structure of the economy
Thus, the needs of the formation of economic public policy are first prerequisite emergence and development of the theory of industrial markets.
Second prerequisite development of the theory of industry markets is a decision-making process to ensure leadership in the industry, requiring an analytical presentation of intra-industry relations
and the behavior of single-industry firms acting as competitors, partners, etc.
Of no small importance for the theory of industrial markets is its intellectual attractiveness, which is third prerequisite its development .
Until 1917, the theory of industrial markets was formed on the basis of empirical analysis. The United States, where the first antitrust laws appeared in 1887 as a reaction of the state to growth, should probably be considered the ancestor of active government intervention in industry activities through government policy. monopoly power individual industries and the strengthening of their influence on public policy as a whole. The priority of the free market sector in the United States predetermined policy instruments that implement the main goal: ensuring competition and a competitive environment in the sectors of the national economy.
Actually, on the basis of empirical analysis, Marx's theory of the sectoral organization of the productive forces of society was formed. It became the basis of economic policy in Russia after 1917 and was further used as a normative approach to the formation of the sectoral organization of the economy within the framework of the economic policy of the socialist states until the 1980s. XX century.
The formation of anti-crisis policies of states during the Great Depression (1928–1933) gave impetus to the further development of the theory of the sectoral organization of the economy already on the basis of theoretical basic analysis, which is due to the development of the theory of economics as a whole. In the late 1940s - early 1950s. the theory of the sectoral organization of the economy has developed into an independent scientific direction. This is associated with the works of J. Bain. The basis of his research is the basic paradigm (structural and logical model) " Structure(structure) → conduct(behavior) → performance(effectiveness) "- has remained a constructive basis for scientific research of the sectoral organization of the economy to this day. The fundamental position of this paradigm (Fig. 1.2) is the following: society expects the industry to function effectively. Efficiency is multidimensional. One of the aspects of efficiency - effectiveness - involves the achievement of the following main goals:
Decisions about how much to produce and how to produce must be efficient in two ways: limited resources must not be wasted; the quantitative and qualitative satisfaction of customer requirements must be ensured;
Producers must take advantage of science and technology to increase output per unit cost and ensure the consumption of new, superior quality products. It should also support long-term growth in real per capita income;
Producers' activities should promote the full use of resources, especially labor, or at least not hinder the use of macroeconomic elements;
The distribution of income must be fair. Fairness is very difficult to define. But it assumes, at the very least, that producers are not receiving income in excess of what is needed to recover costs. Associated with this goal is the desire to ensure reasonable price stability, since uncontrolled inflation distorts the distribution of income in the most undesirable way.
We will return to the basic paradigm in the future.
In the 1980s. interest in the industry organization has sharpened again
due to the following reasons:
Skepticism about the effectiveness of government regulation has grown and the need for a turn towards deregulation has emerged;
There is a growing awareness that sectoral structure has a significant impact on international trade (the problem of gaining benefits
and cartel creation);
Problems and doubts grew about the ability of industrial firms to adapt to changing market conditions;
Discussions have intensified over the nature of the links between market structure and the parameters of its activity and the use of these links in antitrust policy.
The Marxist theory of the sectoral organization of the economy during this period was supplemented, modified, without changing the main normative approach. In this aspect, one should point to the history of the development of cost accounting, the reform of the organization of management (the creation of economic councils, etc.), the development of the theory of the system of optimal functioning of the socialist economy (SOFE). Rejection of the socialist dogmas of building communism and the transition to creation market economy put the Russian economic science before the need to create a concept of the sectoral structure in the transition period to address the practical needs of the government in the formation
and the implementation of Russia's economic policy. results economic reforms 1990-1999 speak of the government's lack of awareness of many aspects of the functioning of industry markets.
Fig. 1.2. The initial paradigm "Structure-behavior-performance"
LECTURE 1 and 2. THEORY OF INDUSTRIAL MARKETS: ORIGIN, DEVELOPMENT, RESEARCH METHODOLOGY
1.1. Object and subject of research of the theory of economics of industrial markets
Traditionally, the concept of industry organization is considered a synonym for industry economy, industry organization theory, industry organization theory, industry market economics ... The main object The theory of the economics of sectoral markets is the study of the mechanism that brings production activities into the fullest possible correspondence with the demand for goods and services.
In the economic literature, one can hardly find precise definition the subject of the economics of sectoral markets. Many authors admit that its boundaries are vague. Subject of theory The economics of sectoral markets is associated with a market approach, according to which consumers and producers act on the basis of price signals generated by supply and demand.
If we consider the existing theory of the economy of sectoral markets (ESM), then we can note its natural tendency to ensure that the regulation of processes corresponds to some ideal concepts, i.e. purely subjective views of theorists. Here, many questions are the subject of microeconomic theory, such sections as the theory of markets, the theory of welfare.
In addition to community, the theory of ERM and microeconomics have significant differences for purposes and methodology.
1) Thus, both theories consider the type of market organization that connects producers with consumers, but this connection itself depends on a large number of variables.
2) The difference is that not all training courses in microeconomics significantly address the problems of monopolistic competition and oligopoly.
3) Specialists in microeconomics are interested in the simplicity and rigor of the evidence base, trying to keep the assumptions and variables to a minimum of the most significant ones. ESM theorists are more inclined to explain numerous quantitative and institutional details and their role, of course, without neglecting the possibilities of simplifying theories.
Studies have shown that specialists in the theory of ERM should own three groups of methods to obtain successful results.
First, professional training in the field of the theory of microeconomics, which provides the formulation of strict connections in the behavior of business entities.
Secondly, the use of modern statistical methods to obtain data on the structure and functioning of the industry.
Third, professional acquaintance with the methods and results of historical studies of the flow of historical events, causal relationships of various surges associated with deviations, economic and organizational innovations (taxation, customs regimes, benefits, etc.).
1.2. Problems of consistency and complexity of research
Consistency means the use of elements of the theory of large systems in ESM studies. In accordance with this theory, any system (including the system of the economy of sectoral markets) can be represented as a large system that allows its sequential decomposition (division) into subsequent subsystems according to certain criteria and fairly homogeneous features, up to elementary subsystems (basic), performing target, basic, system-forming functions in a large system.
Complexity research of the theory of ESM means the need for a comprehensive description of all the qualitative features of industry markets that characterize the markets themselves. However, this is an extremely difficult problem, since it is associated with the need for a quantitative, sufficiently rigorous and representative description of the qualitative characteristics themselves, their structuring and systematization, etc.
1.3. The initial paradigm "structure - behavior - performance"
There are two main approaches to analyzing the organization of industry markets. The first can be conditionally called a systematic approach. It is an approach based on the Structure-conduct-performance paradigm. The second approach is based on the use of microeconomic models and pricing theory (FIGURE).
The paradigm was developed by Harvard professors E. Mason and D. Bane in the 40s and 50s. and was originally focused on empirical research. Mason, Bane and their followers hypothesized that there is a direct link between market structure, firm behavior, and market performance. The object of the research is the ability to predict the parameters of the market functioning after analyzing its structure, basic conditions and the behavior of firms.
Different versions of the systems approach have proposed different relationships between exogenous and endogenous parameters (variables) within the paradigm.
As the ideologues of the systems approach suggested in the middle of the twentieth century, effective functioning should automatically follow from the rational market structure and the behavior of firms that it determines. However, due to various reasons, the market may find itself in a crisis situation. The government can then choose to intervene and try to improve the functioning of the market by applying policies that will affect both the structure of the market and the behavior of firms. Among the instruments of state policy, one can single out state regulation.
The initial paradigm for the existence of efficient sectoral markets is based on fundamental ideas about what is generally entitled to expect from producers of goods and services of sustainable and efficient functioning. At the same time, the very concept of operational efficiency is rather multidimensional and includes the achievement of the following goals.
1. Decision on the feasibility of producing certain products in required volumes and with the use and with the use of a certain technology (what, how much and how) should be effective in terms of economic expenditure of resources and meet the needs of the development of society
2. The dynamics of the firm's productivity should be progressive, that is, accompanied by an economy of factors of production while increasing the output of higher quality products, reducing social costs and maintaining the growth of long-term per capita income.
3. The activities of producers should promote the full use of resources, especially labor.
4. The distribution of income should be socially fair, which ensures reasonable price stability, limiting the level of inflation, since, otherwise, social instability increases significantly.
1.4. Definition of the market and industry. Market boundaries.
Industry Is a set of enterprises that produce products using the same type of technologies and resources. Therefore, the industry sells products that are close substitutes from the manufacturer's point of view.
Market- is a set of conditions for the implementation of purchase and sale transactions; unites firms that produce goods - close substitutes from the point of view of the consumer.
The presence of a close substitute (substitute) is determined by the value of the cross price elasticity of demand. If for goods from the nearest product groups the cross-price elasticity of demand is less than one, then these goods are not substitutes for this product. Consequently, manufacturers and sellers of this product can be considered as a separate market. J. Robinson and E. Chamberlin proposed to determine the market boundary in terms of the cross-elasticity of demand.
Another criterion is based on the correlation of product prices. The prices of goods sold in the same market can be correlated, since these goods are in the same conditions that determine the costs of production and the nature of demand.
There are also geographic market boundaries. So, you can highlight the market of a separate country, region.
1.5. Historical stages in the development of theory
Most experts believe that the economy of sectoral markets began to form as a separate area of economic research in the 30s and 40s. 20c. During this period, the fundamental works of E. Mason were published, and a little later the work of D. Bane.
Period 1930-1940s characterized by the development of research in the field of the economics of industrial markets (production economics) on the problems of oligopoly by Chamberlin, Robinson, statistical studies of concentration, costs and profits. A very important advance in theory was made in connection with the development of the theory of monopolistic competition by E. Chamberlin.
1940-1950s period characterized by significant growth and fundamental work in the field of anticompetitive sources and the harm of monopoly domination. Stocking, Machlup, Bane.
1960s period characterized by the emergence of econometric studies of the structure and performance of the market in the works of Weiss, Scherer, Wilson.
1970s period was characterized by the main focus of research on the analysis of market share as the main indicator of market dominance, scale of production, transaction costs. This period is called the golden age in theoretical studies of the economics of industrial markets. The two main approaches have mutually enriched and complemented each other. However, the methodological balance at a new qualitative level has not been achieved. There is a growing debate about the place of theoretical and empirical analysis in the theory of industrial markets.
Three scientific schools have attracted particular attention:
- “new theory” costs - results, modeling of strategic choices;
The Chicago theory of monopolies;
Competitiveness theory.
1 school New strategic choice modeling theory is to develop ideal theoretical models associated with duo fields.
2 school Chicago School of Analysis, which minimizes the costs of monopolies, has received its greatest development. The product of its activity is the advancement of the following hypotheses.
1. Monopolies represent the highest efficiency.
2. The costs of monopolies are usually used for monopolistic profits.
3. A market with a dominant firm has minimal negative effects.
4. Mergers are a pure form of market dominance that is quickly destroyed by fraudulent market participants.
These provisions did not find convincing evidence, but, nevertheless, they became widespread and served as a theoretical prerequisite for a sharp reduction in antitrust policy and the abandonment of government regulation of the economic sector.
3 school Competitiveness theory(1975-1982), developed by one of economics schools, is mainly associated with the entry of the firm into the market, in which the internal structure of the market is secondary. Researchers believe that such a theoretical approach is more fundamental than the theory of competition, and has great grounds for widespread adoption.
This period is characterized by significant changes in the economy of sectoral markets, in economic system and in the theory of market domination; the economy has become more competitive; many of the economists have adopted the Chicago school. The economy of not only the United States, but also of other countries, became a testing ground for theoretical research and verification of a number of doctrines.
As a result, for about 35 years after Mason's pioneering work in 1939. the research developed in a logical sequence, using an informal theoretical apparatus to analyze the relationship between market structure, firm behavior and market performance.
In subsequent periods, a combination of theoretical and empirical analysis is observed: the theory determines the object of analysis, reveals the spectrum of structural and behavioral parameters, but the relationships between them are revealed in the process of empirical analysis.
In recent decades, the economy of industrial markets has received substantial development three areas of research:
Application of game-theoretic models in the analysis of oligopolistic markets;
Using the theory of transaction costs in the comparative analysis of markets;
Development of a theory of adversarial, or quasi-competitive, markets.