The history of the development of the economy of branch markets
As a separate section economic theory the economics of industry markets emerged 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 (observations of the development and real behavior of firms, generalization of practical experience);
Theoretical (construction of theoretical models of behavior of firms in market conditions).
In the history of development, the following stages can be distinguished.
I stage. The theory of market structures (1880-1910)
In the early 1880s. work came out William Jevons a ( William Jevons), which gave impetus to the development of the theoretical direction of the economy of industrial markets and were devoted to the analysis of basic microeconomic models of the market (perfect competition, pure monopoly), the main purpose of which was to explain the efficiency 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 antitrust laws. In addition to the work of Jevons, one can also highlight the work of Francis Edgeworth ( Francis Edgeworth) and Alfred Marshall ( Alfred Marshall).
Alfred Marshall laid the foundation for the technological concept of competition. Explaining the benefits of large-scale production, Marshall emphasizes the relationship between economies of scale and concentration of production.
The impetus for the development of applied empirical research on industrial markets was given by the work of John Clark ( John Clark), published at the beginning of the 20th century. By this time, in economic science, a static model of competition and monopoly is being formed and approved as two polar market conditions, so that between them, as it were, there are no intermediate states.
However, the studies carried out at this stage were based on too simplified models that do not correspond to reality, especially in terms of the behavior of oligopolistic firms in the market of 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.
II stage. 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 works by Frank Knight are released ( Frank Knight) and Piero Sraffa ( Piero Sraffa). In the 1930s works by Harold Hotelling Harold Hotelling) and Edward Chamberlin ( Edward Chamberlin) dedicated to modeling markets with differentiated products.
One of the first works devoted to the analysis of oligopolistic markets were published in 1932-33. "The Theory of Monopolistic Competition" by Edward Chamberlin, "Economics of Imperfect Competition" by Joan Robinson ( Joan Robinson).
Joan Robinson clearly identified the scope of the analysis, giving a definition of the industry that continues to underlie the theory of the organization of markets, and she also recognized the diversity of the behavioral activity of firms. 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 idea has been affirmed that competition can exist even if firms have market power, which is what the term “imperfect competition” actually 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 offered to explain market prices either in terms of competition or in terms of monopoly. According to Chamberlin's view, most economic situations are phenomena that include both competition and monopoly. The Chamberlin 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). Edward Chamberlin put the beginning of the study of competition as a process that is dynamic in 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 in their special patterns ...”.
A certain impetus to the development of research was also given by the Great Depression, which necessitated a reassessment of 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 rapidly developing. Since that time, economic theory has gradually begun to affirm the position that there is a direct relationship between the level of concentration in the market (the number of sellers), the level of the market price and the amount of 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 in the market. A mechanistic view of monopoly and competition in the market is emerging - the fewer firms operating in the market, the stronger their monopoly power - this is the logic that guides when conducting antitrust policy. In particular, this criterion underlies the policy of allowing or prohibiting mergers and acquisitions adopted in the United States.
The firm's costs and profits
All-Russian classifier types of economic activity (OKVED)
OKVED was put into effect on January 1, 2003 and is designed to ensure the reliability of the reflection of the country's existing economic infrastructure and the possibility of international comparisons. sectoral structure economy.
Simply put, OKVED is a collection of activity codes for entrepreneurs, where the code means the type of activity, the scope 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 types of enterprises;
More simply classifies the type of activity and “encrypts” data about it.
Table 3.4 - All-Russian classifier of types of economic activity
| Chapter | 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, including drinks, and tobacco |
| Subsection DB | Textile and clothing production |
| Subsection DC | Manufacture of leather, leather goods and footwear |
| Subsection DD | Wood processing and production of wood products |
| Subsection DE | Pulp and paper production; publishing and printing activities |
| Subsection DF | Production of coke, oil 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 | Production of electrical equipment, electronic and optical equipment |
| Subsection DM | Production Vehicle and equipment |
| Subsection DN | Other productions |
| Section E | Production and distribution of electricity, gas and water |
| Section F | Building |
| Section G | wholesale and retail; repair of motor vehicles, motorcycles, household and personal items |
| Section H | Hotels and restaurants |
| Section I | Transport and communications |
| Section J | Financial activities |
| Section K | Operations with real estate, rental and provision of services |
| Section L | Public administration and ensuring military security; obligatory social Security |
| Section M | Education |
| Section N | Health and Social Service Delivery |
| Section O | Provision of other communal, social and personal services |
| Section P | Provision of housekeeping services |
| Section Q | Activities of extraterritorial organizations |
The classification of an enterprise according to OKVED is not affected by either the form of its ownership (activity codes are the same for both individual entrepreneurs and LLC), nor the source of investment.
The OKVED classifier includes almost all types of activities permitted in Russia. Therefore, there are many 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 goods - close substitutes are produced by enterprises belonging to different industries. (An example is the production of consumer goods by defense enterprises of the USSR.) Conversely, goods belonging to the same industrial group are intended for different consumer groups and have fundamentally different product boundaries. (The grouping “OKP code 025000” combines goods under the general name “Petroleum products”: gasoline, kerosene, diesel fuel, fuel oil, oils, etc.) Let us note once again that the industry groups enterprises according to the production principle, while the market - according to the generality 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 material market);
Money and finance markets (stock market, bond market).
Commodity (product) 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 later use in production (equipment markets, raw materials markets), which constitute an intermediate product for the economy as a whole, or for income generation (real estate market, including housing market). A special resource market is the labor market - an institution in which individuals offer their skills and qualifications as an object of 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 goods (services) markets are divided into:
To the markets of homogeneous goods;
Markets for differentiated goods.
Markets for a homogeneous product assume that consumers generally evaluate the types of products sold as having no fundamental differences from each other. As a rule, homogeneity occurs primarily where it comes to the physical properties of the product. For example, standard exchange deliveries, many types of raw materials and minerals, agricultural crops can be assigned to homogeneous product groups. However, even if the 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.
Markets for differentiated goods provide for the presence of special properties of products that make their varieties specific in the eyes of consumers. Therefore, there is no longer a single food market - it is now divided into many differentiated segments, each of which contains buyers loyal to “their” brand of goods. Examples of differentiated product markets are the many varieties of dairy products and yoghurts, chocolates, juices, and household appliances, clothing and hygiene products.
By buyer type markets include:
To consumer goods markets;
Markets for industrial goods (means of production).
In the consumer goods markets, there are firms that supply their products to the individual consumer for final consumption. In the markets for industrial goods, both consumers and sellers are, as a rule, companies legal entities producing and acquiring goods for their subsequent participation in the production process.
By the presence and magnitude of barriers to entry allocate:
5 markets without entry barriers 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 few participants;
8 markets with blocked entry and a constant number of participants.
In those markets where there are no barriers to entry, there is complete mobility of resources. Capital and labor move freely between industries, and the number of market agents can change continuously: some firms enter the market, others exit the market. The higher the entry barriers, the fewer participants will be able to organize 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 demand and supply from private agents. This is how numerous auctions, tenders, commodity and financial exchanges operate. All other markets are unorganized, where, apart from the state, there are no special institutions for comparing sales and purchases, the market price is formed gradually, over a long period. Individual market participants set prices and estimate optimal output volumes 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, we can talk about the regional market. A national market occurs when sales and purchases cover the territory of the entire country. If trade operations go beyond the boundaries of one country, there is international market. For example, it is possible to single out the European market, the North American market, the Asian market as an international one. 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), currency and financial markets, as well as some commodity markets (aircraft market, ship market)
Types of market structures are referred to a special type of market classification.
Types of Market Structures
Structure commodity market determines the behavior of the company, 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 isolated three broad categories of markets : a perfect competition market with a maximum degree of competitive interactions, a monopoly market with a minimum degree of competition, and an imperfect competition market, where competition is present, but its effect is distorted by the behavior of economic agents.
Perfect Competition
Perfect competition is defined by different authors in different ways. One of the most apt definitions was proposed by Joan Robinson: “Perfect competition prevails when the demand for each manufacturer's product is perfectly elastic. It follows from this, firstly, that the number of sellers is large and the volume of production of any of them is an insignificantly small fraction of the total output of this product; secondly, that all buyers are in the same position as regards the possibility of choosing between competing sellers, so that the market is dominated by the relations of perfect competition.
The model of perfect competition 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 producers represent 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 with the special properties of their products, all units of the product in the mind of the buyer are exactly the same.
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 distributed instantly.
Competitive behavior provides that the market completely determines the parameters of the firm's behavior (the most important of them is price). The firm is entirely subject to the market, is price taker . The degree of influence of the firm on the market is minimal (or equal to zero). The interaction of firms-price takers 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 sellers and buyers is able to influence the market price, since the share of each firm in the industry market is insignificant, so the demand curve D individual firm is horizontal (i.e., perfectly elastic). A perfect competitor can sell any number of products at a price P installed on the market. However, additional income MR, received from the sale of each additional unit of production, exactly corresponds to its market price (Fig. 3.2).
Rice. 3.2 - Demand for the products of a competitive firm
Advantages of perfect competition:
Perfect competition forces firms to produce at the lowest average cost. 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 this industry. If average costs were below the demand curve, and, accordingly, prices ( AC < P), this would mean that the average cost curve intersects the demand curve and a certain amount of production is formed that brings excess profits. An influx of new firms would wipe out those 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 achieve maximum satisfaction of needs. This is provided when 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 for which it was bought. This achieves not only high resource allocation efficiency, 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, however, cannot be clearly divided, evaluated and sold to each consumer separately (by the piece). This applies to public goods such as fire safety, national defense, and so on.
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 fundamental research (which, as a rule, is unprofitable), science-intensive and capital-intensive industries.
Perfect competition contributes to the unification and standardization of products. It does not take full account of the wide range of consumer choices. Meanwhile, in a modern society that has reached a high level of consumption, various tastes are developing. Consumers are increasingly considering not only the utilitarian purpose of a thing, but also pay attention to its design, the ability to adapt it to the individual characteristics of each person. All this is possible only under conditions of differentiation of products and services, which, however, is associated with an increase in production costs.
In practice, perfectly competitive markets are rare. These include the markets of some exchange goods, 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) - a type of industry market in which the only seller of a product that does not have close substitutes operates, independently exercising control over the price and output volumes, which allows you to receive monopoly profits. In a pure monopoly industry, as a rule, consists of one firm, that is, the concepts of "firm" and "industry" are the same. Pure monopoly usually arises where there are no real alternatives, there are no close substitutes, the product being manufactured is to a certain extent unique, and barriers to entry into the industry are high. This may be due to economies of scale (as in the automotive industry), natural monopoly (as the De Beers company monopolized the largest diamond markets in South Africa and controls the global diamond market).
The characteristic features of a monopoly are highlighted.
9 Lack of perfect substitutes for the product. An enterprise-monopolist can produce homogeneous or differentiated products, but in any case, this product does not have a perfect, from the point of view of the buyer, substitute. The cross elasticity of demand between the monopolist's product and any other good is either zero or tends to zero. That is, a firm is a pure monopoly if it is the only producer economic benefit, which has no close substitutes (substitutes).
10 Lack of freedom to enter the market, that is, a monopolist can exist while other enterprises are not allowed to enter the market: the monopoly enterprise has a patent for products, technology, the existence of a government license, quotas, monopolist control over any production resource, significant savings on the scale of production, allowing only one supplier to be present on the market, etc. That is, the firm is shielded from direct competition by high entry barriers.
11 One seller is opposed by a large number of buyers.
12 In a monopoly, price exceeds marginal revenue. If, under 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. Therefore, the price exceeds the marginal revenue, that is P > MR. Monopoly equilibrium is observed where the marginal revenue from the sale of a good is equal to the marginal cost of its production: MR = MS. The monopoly does not set the price arbitrarily: 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 this market (Fig. 3.3).
Rice. 3.3 - Demand and marginal revenue of a firm under pure monopoly
It is generally believed that monopoly prices are the highest. Indeed, they are usually higher than 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 limit output. As an industry monopolizes, costs and demand change. Costs are affected by two directly opposite factors - lowering and increasing. Decreasing, since as a result of the creation of a monopoly, it is possible to more fully use the positive effect of increasing the scale of production (savings in fixed costs, centralization of supply and distribution, savings in marketing operations, etc.). On the other hand, there is also a tendency to increase them, associated with the swelling and bureaucratization of the administrative apparatus, 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 cost of any output is higher than the average total cost. Even with modern competition X-inefficiency is possible, but such a situation is an exception to the rule, because such firms are doomed to death.
A 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; the company that owns the patent for the innovation (“Microsoft”); prestigious consumer markets (“Rolex”, “Lamborghini”), “ALROSA” - diamond mining in Russia; "De Beers" - world diamond mining; "Eurocement Group" - cement market in Russia.
natural monopoly will be found where there are such characteristics of the market:
Positive economies of scale in the long run, due to the technological reasons of the industry;
Large initial capital investments;
Insignificant marginal cost of production;
Unprofitable marginal (competitive) pricing.
Examples: electric power industry, pipeline transport, water utility, housing and communal services, railway transport, subway, gas industry.
Along with the monopoly on the part of the 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). Much more often, the monopsonic advantage is realized in local markets.
Quasi-monopoly Markets are considered to be those in which, at a relatively low concentration of sellers, there is monopoly power.
Theory of industrial markets as a science
The theory (economics) of sectoral markets is one of the youngest and most dynamically developing areas of economic science. For the first time, attempts to analyze the sectoral organization of the market were made in the period 1887 - 1915. Between 1933 and 1940 the analysis of industry markets is becoming especially popular, which is associated with the economic depression in the world and the desire to reassess the role of competition in markets of different levels. Then in the middle of the twentieth century. interest in this area of research has cooled down a bit, which was associated with a shift in attention to stabilizing the economy and supporting underdeveloped economic regions. However, already in the 1970s. interest in the study of the functioning of industry markets is re-emerging and intensively gaining momentum.
In foreign universities, the economics, as well as the organization, of industrial markets has a longer and richer history of teaching, spanning several decades. In Europe and the United States, courses are taught called "Economics" and "Industrial Organization".
The theoretical foundations of this course are developed and presented mainly in the works of Western scientists. Currently, in Russia there are works devoted to this problem.
There is no unified approach to the question of what the “Economics of Industrial Markets” is studying, yet. Another important question is whether this discipline is an in-depth course in microeconomics or whether it is an independent direction. Many foreign experts believe that the name of the discipline does not fully convey the content of the subject of study. This is due not only to the presence of different scientific directions in economic thought in general, but also in microeconomics, in particular.
Literally from English, this course is called "Economics of Industry", in Russia various interpretations are used: "Economics and organization of industry markets", "Economics of industry markets", "Theory of industry markets", "Theory of organization of industry markets", "Theory of organization of industry" and others. Of course, over time, scientists will find a more accurate definition of the course, but the use of the name "Industrial Economics" in our country is not acceptable, because. the area of economic theory under consideration has very little in common with it. Therefore, for the time being, the name “Economics of Branch Markets” can be considered the most acceptable.
It is quite difficult to give a clear definition of the economy of industry markets, this is due, according to many authors, to the fact that its boundaries are rather vague. So economics of industry markets can be defined as a field of theoretical and applied research that is related to the analysis of the economy and organization of various industrial sectors modern economy and emerging within their framework of market structures. Such a view is provided by Jean Tirol, who emphasizes the need to focus on the study of the functioning of markets and their various structures. According to this, the economics of industrial markets has as its main task the study of the functioning of markets, the interaction of markets and enterprises, and also explores the economic policy of the state associated with the management of markets and market structures. Including policies to support competition and regulate the activities of monopolies, including natural ones, as well as industrial, technological, innovation policies and a number of other aspects state regulation. At the same time, the economics of industry markets combines aspects of micro- and macroeconomic analysis of market conditions, making it possible to expand the scope of scientific research.
It is also difficult to find an exact definition of the object of the economy of branch markets in the economic literature. This is due to the same reasons why it is rather difficult to define this discipline.
From the name "Economics of Industry Markets" it follows that the area of study of the discipline is: the organization of individual markets and industries, the activities of firms in the industry, the impact of their decisions on the industry organization, the patterns of formation of various market structures, the principles of behavior of firms in various markets, the results of their behavior for the entire economy, options for sectoral policy of the state.
This science is also developing tools for the economic analysis of market structures, deepening the understanding of patterns in this area, and studying the possibility and necessity of state regulation.
In this way, economics of industry markets is a field of economics devoted to the study of markets that cannot be analyzed using standard models of perfect competition.
Basic object of analysis is the study of how productive activity is brought into harmony with the demand for goods and services by means of some organizing mechanism (such as the free market), and how changes and imperfections in the organizing mechanism affect the progress made in satisfying economic needs.
The field of study of the modern theory of the organization of industrial markets covers three groups of issues:
- questions of the theory of the firm: its scale, scope, organization and behavior;
- imperfect competition: exploring the conditions for acquiring market power, the forms of its manifestation, the factors of its preservation and loss, price and non-price rivalry;
– society’s business policy: what should be the optimal business policy (both traditional antimonopoly policy, market regulation, and issues of deregulation, liberalization of conditions for entering the industry, privatization, stimulation of technological and product innovations, competitiveness).
Short course of lectures
Topic 1. Introduction to the theory of industrial markets. The history of development
The theory of industrial markets can be defined as the science of the organization and economic consequences of the functioning of industry markets and the strategic behavior of producers in imperfectly competitive markets.
Under industry market is understood as a set of enterprises that produce products similar in consumer purpose using similar technologies and production resources and competing with each other for the sale of their products on the market.
The main attention in the economics of sectoral markets is given to the study of industries and services. The central place is given to manufacturing industries, due to their scale and strategic importance in the national economy. The main challenge is to determine the role of market processes in the satisfaction of producers consumer demand, the reasons leading to the violation of market efficiency, and ways to regulate industry markets in order to increase the efficiency of their functioning. In this regard, the economy of industry markets acts theoretical basis for decision-making within the framework of the sectoral policy of the state.
Many issues considered in the economics of sectoral markets are at the same time the subject of microeconomic theory. At the same time, the approaches used and the goals pursued by these areas of economic theory have significant differences:
1) in the economy of sectoral markets, a systematic approach prevails, based on the analysis of many different relationships, both quantitative and institutional, while microeconomic theory is based on a strict description of the most important simple relationships;
2) the economics of industrial markets has a high practical applicability of the results and a rich empirical base for testing the provisions, microeconomic theory operates exclusively with theoretical models.
The set of practical problems that the economy of industry markets deals with is quite wide, from determining the optimal behavior of a manufacturer in the market of its products to conducting a systematic industry analysis and developing comprehensive decisions on the implementation of industry policy by government agencies. For example, R. Schmalenzi points out the following as the main questions answered by the economics of industrial markets:
1. What is the market for an individual product in a world of differentiated products, what defines its boundaries?
2. What factors determine the size and structure of firms?
3. What are the key factors that determine the structure of the market?
4. What are the goals of the firm?
5. What pricing policy is typical for firms with market power, and how does it affect public welfare?
6. What opportunities do firms operating in the industry have to prevent new firms from entering the industry or crowding out some existing ones?
7. What factors determine the possibility of collusion between firms and other forms of inter-firm coordination?
8. What damage to public welfare occurs if the firm has market power?
The history of the development of the economy of branch markets
As an independent branch of economic theory, the economics 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 arose much earlier.
In the development of the economy of sectoral markets, two main directions can be distinguished:
Empirical (observations of the development and real behavior of firms, generalization of practical experience);
Theoretical (construction of theoretical models of behavior of firms in market conditions).
In the history of development, the following stages can be distinguished.
I stage. The theory of market structures (1880-1910)
In the early 1880s. the works of Jevons came out, which gave impetus to the development of the theoretical direction of the economy of industrial markets and were devoted to the analysis of basic microeconomic models of the market (perfect competition, pure monopoly), the main purpose of which was to explain the effectiveness 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 antitrust laws. In addition to the work of Jevons, one can also highlight the work of Edgeworth (Edgeworth) and Marshall (Marshall).
The impetus for the development of applied empirical research on industrial markets was given by the works of Clark (Clark), published at the beginning of the 20th century.
However, the studies carried out at this stage were based on too simplified models that do not correspond to reality, especially in terms of the behavior of oligopolistic firms in the market of 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.
II stage. 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 published works by Knight and Sraffa. In the 1930s the work of Hotelling and Chamberlin on modeling markets with differentiated products.
One of the first works devoted to the analysis of oligopolistic markets were published in 1932-33. Chamberlin's Theory of Monopolistic Competition, Robinson's The Economics of Imperfect Competition, and The Modern Corporation and private property» Berle and Minza. 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, empirical research is rapidly developing (Berle and Means, Allen and S. Florence, etc.).
A certain impetus to the development of research was also given by the Great Depression, which necessitated a reassessment of the actual role of competition in the operation of the market mechanism.
III stage. Systematic analysis of industry markets (1950 - present)
Within the framework of this stage, the economy of branch markets is being formed 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 by Lancaster and Marris appear.
Since the 1970s there is a growing interest in the economy of industry markets, caused by:
1) increased criticism of the effectiveness of state regulation, a departure from direct regulation to the conduct of antimonopoly policy;
2) development international trade and enhancing the impact on the terms of trade market structure;
3) growing doubts about the adaptive capacity of firms in changing market conditions.
Since the 1970s there is an integration of game theory methods into the methodological apparatus of the economy of branch markets, there are studies devoted to the problems of cooperative agreements, information asymmetry and incomplete contracts.
Modern research in the economics of industry markets can be divided into two main areas that differ in the methodology used:
1) the Harvard school, based on system analysis industry markets on an empirical basis;
2) the Chicago school, based on a rigorous analysis of dependencies based on the construction of theoretical models.
Modern Theory of the Firm
The theory of the firm is one of the richest and most dynamically developing areas of modern economic theory. The modern theory of the firm explores not only the internal and external aspects of the functioning and existence of the firm in various conditions, but also touches upon the institutional issues of economic efficiency.
The best known contemporary researchers in the theory of the firm are Milgrom and Roberts (1988), Hart (1989), Holmstrom and Tyrol (1989).
The main problems considered in the theory of the firm were already raised in the first half of the 20th century (for example, Knight F. (1921), Coase R. (1937)).
The problem of the existence of the firm was raised by Coase, who pointed out that classical economic theory does not provide any reason for the existence of the firm. To justify the existence of the firm, Coase turned to the theory of transaction costs he proposed, the minimization of which was expressed in the intra-company organization. Coase also criticized the classic assertion that the structure of a firm is determined by the technologies used.
In the 1960s v economic research The problem of the "owner-manager" (Principal-Agent Problem), consisting in the presence of a conflict of interests between the owners of the company and its managers, raised in the studies of Berle and Means (1933), was widely developed. In the same period, studies appeared concerning the bounded rationality of economic agents, which was considered as one of the reasons for the existence of firms (Simon, March (1958), and later Kuvert, March (1963)).
As an independent section of economic theory, the theory of the firm was formed in the 1970s. (studies by Williamson (1971, 1975), Alchean and Demsitz (1972), Ross (1973), Arrow (1974), Jensen and Meckling (1976) and Nelson and Winter (1982)).
Currently, there are three main directions in the theory of the firm:
1) the neoclassical concept of the firm;
2) contractual (institutional) concept of the firm;
3) the strategic concept of the company.
Alternative goals for the firm
The classic goal of a firm is to maximize the profits generated by the firm. However, in practice, profit maximization is not always the main goal of the firm. Next, we will consider several models that take into account the different goals that firms may pursue.
Baumol model
In the Baumol model, the goal of the firm is to maximize the total revenue from product sales, which leads to a decrease in profit, compared with its maximum level. Obviously, in this case, the sales volume will exceed the sales volume under conditions of profit maximization, which is beneficial, first of all, to the company's managers, since their remuneration is mainly tied to sales volumes. However, the owners of the company may also be interested in maximizing sales proceeds, the reasons for this may be that a reduction in sales volumes in the case of profit maximization can lead to:
Reducing the market share of the company, which may be highly undesirable, especially in the face of growing demand;
Decrease in the market power of the firm, due to an increase in the market share of other firms;
Reduction or loss of distribution channels for products;
Reduce the attractiveness of the firm to investors.
Williamson model
The Williamson model is based on taking into account the interests of managers, manifested in their discretionary behavior in relation to various items of expenditure of the firm (Figure 2.1).
Rice. 2.1 Williamson model
Williamson in his model identifies the following main goals of managers:
1) wage other cash rewards;
2) the number of subordinate employees and their qualifications;
3) control over the investment costs of the firm;
4) privileges or elements of managerial slack (company cars, luxurious offices, etc.).
The larger the size of the firm, the more important these goals become for the manager.
Formally, the objective function of the managers in the Williamson model includes the following variables:
S - excess staffing costs, defined as the difference between the maximum profit (P max) and real profit (P A).
M - "management slack", defined as the difference between real profit (P A) and reported profit (P R) (managers can both hide part of the profit and overestimate the reported profit compared to the real one).
I - discretionary investment costs, defined as the difference between the declared profit (P R) and the amount tax payments(T) and the minimum profit level acceptable for shareholders (P min).
The pursuit of these goals is limited by the need to maintain an acceptable level of declared profits (P R). In this case, the task is written as follows:
Thus, in addition to the volume of output (Q), which affects the level of real profit, managers can choose the value:
1) excess staff costs (S);
2) the amount of expenses for the elements of managerial slack (M).
The value of discretionary investment spending (I) is determined uniquely, since the minimum profit and the level of taxes are given.
The solution of the above problem shows that such a firm will have higher staff costs and more managerial slack than a profit maximizing firm. Differences with a profit-maximizing firm also consist in a different response of the firm to changes in external parameters (changes in demand, tax rates, etc.).
Self-managed enterprise model
For employees who own a firm, the goal is to maximize profits per employee. If employees occupy a dominant position within the firm (for example, owning controlling stake shares), the firm's policy will also be aimed at maximizing the income received by each employee of the firm.
Let the firm use a two-factor production technology, using labor (L) and capital (K) in production. Let the marginal productivity of labor decrease with the growth of its use. Let the firm also operate in the short run in a perfectly competitive market.
Then the profit per employee of the firm is:
P is the price of the goods,
q is the volume of output,
r is the rental rate for the use of a unit of capital.
Figure 2.2 shows the dependence of the total revenue of the firm (TR) on the number of employees (L). The firm chooses the amount of labor that maximizes profit per worker. Graphically, earnings per employee is expressed as the tangent of a line that connects a point on the total revenue curve with a point on the total cost of capital.
Rice. 2.2. Choosing the Employment Level in the Self-Managing Firm Model
The firm maximizes profit per employee when this value is equal to the marginal product of labor in monetary terms(See Figure 2.3).
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The second maximum condition is provided by the law of diminishing marginal productivity.
Rice. 2.3. Self-managed firm proposal
The behavior of a self-managing firm differs significantly from the behavior of firms with the aim of maximizing profits. An increase in the market price from P 1 to P 2, as shown in Figure 2.3, leads to a decrease in the level of employment and a corresponding reduction in output. Thus, the supply curve of a self-managed firm has a negative slope. The presence of a large number of such firms in the market can lead to instability of the market equilibrium.
Model individual entrepreneur
An individual entrepreneur is both the owner of the company and the employee. The goal of the sole trader is to maximize utility by choosing between profit and leisure time (see figure 2.4).
Formally, the model of a rational individual entrepreneur can be written as follows: 
The entrepreneur maximizes his utility (U) by choosing the appropriate amount of leisure (L S). Leisure time uniquely determines the time spent by an individual on work, which, in turn, determines the level of profit (P(L S)). With an increase in work time, profit initially grows, however, starting from a certain point, the efficiency of labor efforts begins to fall, and profit, accordingly, begins to decline.
The maximum level of utility is reached at the point of contact between the indifference curve (U 1) and the profit function (point E on the graph).
Perfect Competition
Perfect competition reflects such a form of market organization when all types of rivalry are excluded both between sellers and between buyers. Perfect competition is perfect in the sense that with such an organization of the market, each enterprise will be able to sell as many products as it wants, and the buyer can buy as many products as he likes at the current market price, while neither an individual seller nor individual buyer.
A perfectly competitive market is characterized by the following distinguishing features.
1. Smallness and plurality. There are quite a lot of sellers on the market offering the same product (service) to many buyers. At the same time, the share of each economic entity in the total sales volume is extremely insignificant, therefore, a change in the volume of supply and demand of individual entities does not have any effect on the market price of products.
2. Independence of sellers and buyers. The impossibility of the influence of individual market entities on the market price of products also means the impossibility of concluding any agreements between them on the impact on the market.
3. Product homogeneity. An important condition for perfect competition is the homogeneity of products, which means that all products circulating on the market are exactly the same in the minds of buyers.
4. Freedom of entry and exit. All market entities have complete freedom of entry and exit, which means that there are no barriers to entry and exit. This condition also implies absolute mobility of financial and production resources. In particular, for the labor force, this means that workers can freely migrate between industries and regions, as well as change professions.
5. Perfect market knowledge and full awareness. This condition implies free access of all market participants to information about prices, technologies used, probable profits and other market parameters, as well as full awareness of market events.
6. Absence or equality of transport costs. There are no transport costs or there is an equality of specific transport costs (per unit of production).
The perfectly competitive market model is based on a number of very strong assumptions, the most unrealistic of which is complete knowledge. At the same time, the so-called law of one price is based on this assumption, according to which absolutely competitive market Every commodity is sold at a single market price. The essence of this law is that if any of the sellers raises the price above the market price, then he will instantly lose buyers, since the latter will go to other sellers. Thus, it is assumed that market participants know in advance how prices are distributed among sellers and the transition from one seller to another costs nothing for them.
Perfect Monopoly
A perfect monopoly is a market structure where there is only one seller and many buyers. The monopolist, having market power, carries out monopolistic pricing, based on the criterion of profit maximization. Like perfect competition, perfect monopoly has a number of essential assumptions.
1. Lack of perfect substitutes. A price increase by a monopolist will not lead to the loss of all buyers, since buyers do not have a full-fledged alternative to the products produced by the monopolist. However, the monopolist must take into account the existence of more or less close, albeit imperfect, substitutes for its products produced by other manufacturers. In this regard, the demand curve for the monopolist's products has a falling character.
2.Lack of freedom to enter the market. The market of a perfect monopoly is characterized by the presence of insurmountable barriers to entry, among which are:
- the monopolist has patents for products and technologies used;
– the existence of government licenses, quotas or high duties on the import of goods;
- monopolist control of strategic sources of raw materials or other limited resources;
– significant economies of scale in production;
– high transportation costs, contributing to the formation of isolated local markets (local monopolies);
- carrying out by the monopolist of the policy of preventing new sellers from entering the market.
3. One seller is opposed by a large number of buyers. A perfect monopolist has bargaining power, manifested in the fact that he dictates his terms to many independent buyers, while extracting the maximum profit for himself.
4. Perfect Awareness. The monopolist has complete information about the market for its products.
Depending on the types of barriers that prevent new firms from entering the monopoly market, it is customary to distinguish the following types of monopoly:
1) administrative monopolies due to the existence of significant administrative barriers to entry into the market (for example, state licensing);
2) economic monopolies caused by the monopolist's policy of preventing new sellers from entering the market (for example, predatory pricing, control over strategic resources);
3) natural monopolies due to the existence of significant economies of scale in relation to the size of the market.
The monopoly structure of the market in conditions of profit maximization by the monopolist leads to limited production volumes and overpricing, which is seen as a loss of social welfare. At the same time, the functioning of a monopoly, as a rule, is associated with the existence of the so-called X-inefficiency, which manifests itself in the excess of real costs for the production of products at the minimum cost level. The reasons for such inefficiency of monopoly production can be, on the one hand, irrational management methods caused by the absence or weakness of incentives to increase production efficiency, on the other hand, incomplete extraction of economies of scale due to incomplete utilization of production capacities, due to limited production volumes while maximizing profits.
At the same time, the existence of a monopoly in a number of cases has its rather significant advantages. For example, a monopoly, due to the implementation of the existing market power, has additional own funds, which the monopoly can use to develop innovative and investment activity, which might not be available under a different market structure. In the case of significant economies of scale relative to the size of the market, the existence of one large enterprise is more economically justified than the existence of several smaller ones, since one enterprise will be able to produce products at much lower costs than several. The monopolist enterprise is characterized by a more stable position in the market than in any other market structure, while the scale of activity increases its investment attractiveness which makes it possible to attract the financial resources required for development at a lower cost.
Cournot model
Let's start the analysis with the simplest oligopoly model - the Cournot model proposed by the French economist O. Cournot in 1838 using the mineral water market as an example.
This model is based on the following basic assumptions:
1) firms produce homogeneous products;
2) firms know the curve of total market demand;
3) firms make decisions about production volumes independently of each other and simultaneously, assuming that the production volumes of competitors are unchanged and based on the criterion of profit maximization.
Let there be N firms in the market. For simplicity, assume that the firms have the same production technology, which corresponds to the following total cost function:
TC i (q i) = FC + c ∙ q i ,
FC - the amount of fixed costs;
c is the marginal cost.
P(Q) = a – b ∙ Q.
In this case, we can write the profit function for an arbitrary firm i:
Each firm determines the output at which it will receive the maximum possible profit, provided that the output of other firms remains unchanged. Solving the problem of maximizing the profit of firm i, we obtain the function of the best reaction of firm i to the actions of competitors (the Nash response function in terms of game theory):
As a result, we obtain a system of N equations represented by the best response functions of firms and N unknowns, note that if all firms are the same, as in this case, then the equilibrium will be symmetrical, that is, the equilibrium production volumes for each firm will coincide:
Where the index c indicates the equilibrium of this indicator according to Cournot.
In this case, the Cournot equilibrium will be characterized by the following indicators:
An analysis of the obtained equilibrium characteristics allows us to draw the following main conclusions:
1. In Cournot equilibrium, higher prices and lower outputs are achieved compared to perfect competition, which leads to a net loss in social welfare.
2. An increase in the number of producers in the Cournot equilibrium leads to a decrease in the market price, an increase in the total volume of production with a decrease in the production volumes of existing firms, and, accordingly, leads to a decrease in their market share and profit. Thus, an increase in the number of firms in this model is beneficial to public welfare, but may be opposed by firms already in the market. An example of such resistance can be the introduction of various certifications and compulsory licensing, the activities of professional or industry associations, as well as various measures of economic opposition to the entry of new firms into the market.
3. With an increase in the number of firms, the equilibrium in the Cournot model tends to a perfectly competitive one and coincides with it for an infinite number of firms.
Let us dwell in some detail on how an increase in the number of firms affects the welfare of society.
Let us estimate consumer surplus (CS) at a given price P:
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As the price, we substitute the P c obtained above:
Therefore, as the number of firms increases, consumer welfare increases. Consider now the total welfare (SS):
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Again using the expression for the price, we get:
Thus, it is true that social welfare increases with the increase in the number of firms in the industry, but at the same time there is a decrease in the profits of producers.
Let us now consider how the equilibrium characteristics in the Cournot model change if the total costs of firms for the production of products are different:
TC i (q i) = FC i + c i ∙ q i , where
q i is the volume of production of firm i;
FC i is the amount of fixed costs of firm i;
c is the marginal cost of firm i.
In this case, assuming the market demand function unchanged, we get:
As before, solving the profit maximization problem, we obtain the functions of the best response of firms to the actions of competitors:
where q - i are the production volumes of all firms except i.
As a result, we obtain a system of N equations represented by the best response functions of firms and N unknowns, we note that in this case, the equilibrium production volumes of firms will depend on the ratio of marginal costs in the industry. Instead of solving this system to determine the equilibrium output of each firm, we aggregate the resulting best response function of firm i to obtain the total equilibrium output and equilibrium price:
Thus, if firms operating in the market have different production costs, the equilibrium output and price in the Cournot model depend only on the total marginal costs of firms, and not on the ratio of costs between firms, the ratio of costs determines the market share of firms.
Monopoly power of the firm
The introduction of the concept of monopoly power and the corresponding methods for measuring it allows us to analyze the impact on the market of individual entities.
Monopoly power of the firm manifests itself in the ability to set prices at a level exceeding the marginal cost of production (that is, above the competitive level). Indicators of monopoly power are thus based on a comparison of the real market structure with that of a perfectly competitive market.
One of the consequences of the presence of monopoly power in the market is the emergence of the so-called economic profit. The presence of economic profit for a firm over a long period is direct evidence of the existence of its monopoly power and, accordingly, the imperfection of the market. Most indicators of monopoly power are based on the concept of economic profit.
economic profit is defined as the difference between the firm's accounting profit (that is, the actual profit earned) and normal profit. Under normal profit is understood as such a value of profit that gives a level of profitability that is normal for a given industry or economy, respectively, if the analysis is carried out at the industry or macro level.
One of the central concepts used in determining the level of monopoly power is normal profit, the measurement of which is associated with a number of theoretical and practical problems. The definition of normal profit is considered in financial analysis.
Normal profit in financial analysis, it is understood as the opportunity cost of the company's equity and represents the maximum return that can be obtained by investing in other projects with the same level of risk.
In financial analysis, the CAPM (Capital Asset Pricing Model) is widely used to determine the value of normal profit.
Definition (CARM).
CAPM shows how much the return on investment exceeds the return on risk-free investments. As a risk-free investment, as a rule, investments in government securities are taken. The excess of investment returns over risk-free returns is risk premium.
According to the CAPM model, the rate of return on investment is:
R x \u003d R f + β x (R m - R f),
where R x is the rate of return of the security x;
R f is the rate of return on risk-free assets;
β x is the beta coefficient of security x, which shows the risk of investing in security x compared to the risk of the market portfolio;
R m is the average market return.
Market risk premium represents the value of β x ·(R m – R f), reflecting the excess of the return on investment in security x compared to the return on investment in risk-free assets. The higher this value, the more risky are investments in this asset. Degree of investment risk in a particular security x reflects the beta coefficient (β x).
Beta ratio(β x) shows how much the market value of the corresponding security depends on changes in the market situation stock market. Thus, the value of β x less than 1 characterizes the weak influence of market conditions on the value of the security. The value of β x, exceeding 1, reflects a higher risk than the market risk of investing in this security.
For most countries, the required return on equity (R x) corresponds to normal profit. However, some difficulties may arise due to the peculiarities of accounting for the use borrowed money in individual countries. For example, in some countries, the costs do not include interest on bonds issued by the enterprise, and part of the interest payments on bank loans, and therefore, when determining economic profit, it should include interest payments on loans from these sources, although from the point of view of economic theory, these payments should be related to costs.
In this case, to determine the normal profit, you should use the weighted average cost of capital (WACC) (Weighted Average Cost of Capital), which takes into account the financing of the company's activities at the expense of borrowed funds:
 |
where
r i is the interest rate for the source of financing for the activities of firm i, taking into account the inclusion of a part of the interest paid in costs, including the required rate of return on equity;
d i is the share of the source of financing i in the total capital of the firm.
In this case, the normal profit rate depends on:
Profitability of risk-free investments;
Average market risk premium;
The risk of investing in the shares of a particular firm;
Proportions of own and borrowed capital in total capital
Having defined the basic concepts, let's move on to the most common indicators of monopoly power, including:
1) the rate of economic profit (Bain's coefficient);
2) Lerner coefficient;
3) Tobin coefficient (q-Tobin);
4) Papandreou coefficient.
Bain's ratio (rate of economic profit)
The Bain coefficient shows the economic profit per ruble of own invested capital:
Accounting Profit - Normal Profit
K-nt Bein = –––––––––––––––––––––––––––––––––––––––
Firm's equity
Any economic system in the course of its activities constantly faces and is forced to answer three fundamental questions:
1. What produce and in what quantities?
2. How produce and at what cost?
3. For whom to produce and how to distribute the products produced?
There are various alternative methods for solving this group of problems. For example, if the organization of the economy is such that all matters are within the competence central authorities management, then these three issues can be resolved through central planning. If the intervention of the state is limited to the redistribution of income between various members of society and the sale social programs, and the market answers the rest, then in this approach, consumers and producers act in accordance with the prices, profits and losses that are generated by the interaction of supply and demand in freely functioning markets.
The modern market economy is the most complex economic organism, consisting of a huge number of various industrial, commercial, financial and other structures interacting on the basis of a system of business legal norms and united by a single concept - the market. The subject of the theory of industrial markets is connected, first of all, with market approach and lies in the study of the state of industries in industrialized economic systems. Most core courses consider manufacturing industries as industries due to their size and strategic importance in the economy.
It is possible to define subject theory of industrial markets, given by Coase: the organization of industry is "a description of how economic activity divided among firms. As you know, many firms carry out a lot different types activities, while others have a very limited range of activities. 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 usually called, the structure of industry.
From the name "Theory of industry markets" it follows that this science deals with the organization of individual industries and markets, studies the activities of firms in the industry, the impact of their decisions on the industry organization, the patterns of formation of various market structures, the principles of behavior of firms in various markets, the results of their behavior for the entire economy, options for sectoral policy of the state. The subject of analysis of the theory of industrial markets is shown in Figure 1.1. Of particular interest is the organization of industry in modern conditions in Russia and other countries.
Figure 1.1. – Subject of analysis “Theory of industrial markets”
To study the theory of industrial markets is to investigate the mechanism that brings production activities into harmony with the demand for goods and services. This organizing mechanism is the free market, and therefore the main object of the course is the study of the functioning of the market. The most important questions to be answered are the following:
How do market processes direct producers to meet consumer demand?
How do market processes bring markets to an equilibrium state?
Why and how can market processes be disrupted?
• how can they be adjusted so that the performance of the economy corresponds to the required representation?
In one way or another, the questions posed are the subject of microeconomics. However, despite the similarities, there is an important difference between microeconomics and industrial economics (the theory of industrial organization), both in purpose and in methodology.
As noted F.M. Scherer(36), both theories explain economic phenomena and consider a type of market organization that links producers to consumers, this link being an important variable. However, these theories differ mainly in the number of variables that are taken into account in the study of phenomena and explanation, as well as the applicability of predictions and explanations to specific situations in the real world.
The study of the problems of industrial organization is important for two reasons. Firstly, research in this area has a direct impact on the definition and implementation of public economic policy in areas such as the choice between private and state enterprises, regulation and deregulation of public infrastructure sectors, maintaining competition through antitrust policy, stimulating technological progress, and much more. Secondly, in relation to many aspects of functioning real markets(markets of imperfect competition) in countries with developed industrial market economy uncertainty remains. Therefore, further research in this direction, of course, is of practical importance.
Branch economics is based on the theory of the firm, the study of which precedes the analysis of industry markets. At the same time, the firm is mostly considered as a separate unit that makes a decision aimed at maximizing profit, i.e. nothing more than a "profit maximizing black box". Relationship between internal organization(managerial control, delegation and execution, etc.) and market strategy is taken as given.
As an independent branch of economic theory, the economics 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 arose much earlier.
In the development of the economy of sectoral markets, two main directions can be distinguished:
Empirical (observations of the development and real behavior of firms, generalization of practical experience);
Theoretical (construction of theoretical models of behavior of firms in market conditions).
In the history of development, the following stages can be distinguished.
I stage. The theory of market structures (1880-1910)
In the early 1880s. the works of Jevons came out, which gave impetus to the development of the theoretical direction of the economy of industrial markets and were devoted to the analysis of basic microeconomic models of the market (perfect competition, pure monopoly), the main purpose of which was to explain the effectiveness 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 antitrust laws. In addition to the work of Jevons, one can also highlight the work of Edgeworth (Edgeworth) and Marshall (Marshall).
The impetus for the development of applied empirical research on industrial markets was given by the works of Clark (Clark), published at the beginning of the 20th century.
However, the studies carried out at this stage were based on too simplified models that do not correspond to reality, especially in terms of the behavior of oligopolistic firms in the market of 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.
II stage. 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 published works by Knight and Sraffa. In the 1930s the work of Hotelling and Chamberlin on modeling markets with differentiated products.
One of the first works devoted to the analysis of oligopolistic markets were published in 1932-33. Chamberlin's Theory of Monopolistic Competition, Robinson's The Economics of Imperfect Competition, and Burle and Means' Modern Corporation and Private Property. 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, empirical research is rapidly developing (Berle and Means, Allen and S. Florence, etc.).
A certain impetus to the development of research was also given by the Great Depression, which necessitated a reassessment of the actual role of competition in the operation of the market mechanism.
III stage. Systematic analysis of industry markets (1950 - present)
Within the framework of this stage, the economy of branch markets is being formed 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 by Lancaster and Marris appear.
Since the 1970s there is a growing interest in the economy of industry markets, caused by:
1) increased criticism of the effectiveness of state regulation, a move away from direct regulation towards the implementation of 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 capacity of firms in changing market conditions.
Since the 1970s there is an integration of game theory methods into the methodological apparatus of the economy of branch markets, there are studies devoted to the problems of cooperative agreements, information asymmetry and incomplete contracts.
Modern research in the economics of industry markets can be divided into two main areas that differ in the methodology used:
1) the Harvard school, based on a systematic 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.
