The New Industrial Economics School

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Buthelezi Molefi
Student (University), Botswana

The New Industrial Economics School

Industrial Economics (IE) involves the study of firms, industries and markets. It looks at firms of all sizes and a any industry, typically analyzing the decision making at the levels of the individual firm or industry. By using various models, IE helps us understand such issues as:
- the levels at which capacity, output and prices are set;
- the extent that products are differentiated from each other;
- how much firms invest in research and development (R&D)
- how and why firms advertise
IE also gives insights into how firms organise their activities and why they do it in that way. Models typically take profit maximization as given, but but also alternative objectives van be employed, such as trying to grow market share.
One of the key issues in industrial economics is assessing whether a market is competitive. Competitive markets are normally good for consumers (although they might not always be feasible) so analysis of how to measure the extent of competition in markets is important. IE also considers whether regulation is needed, and if so the form it should take.

I understand that the New Industrial Economics school (also called New Industrial Organization school) measures the degree to which an actual market strays from perfect completion. Who has some more info on what this school is about? Do you think this new thinking is a valuable addition to the views to the competitive process in industrial economics?

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