The Industrial Organization Model

This model, pioneered by Edward.H.Mason and Joe. Bain, provides a useful

conceptual framework for analyzingthe structure of real world markets.

For example, suppose we want to compare the structure of the pharmaceutical industry to the farm equipment industry. The industrial organization model gives us the tools to carry out this task.

Market Structure

Market Conduct

Market Performance

Government Policy

The I. O. Model

Number and size distribution of sellers

Number and size distribution of buyers

Degree of product homogeneity or heterogeneity

Importance of economies of scale

Barriers to entry

•Pricing strategies

•Product development strategies

•Advertising and promotion strategies

•Means of coordination and cross-adaptation of price, product, and sales promotion policies among competing sellers

•Legal tactics

Relationship between price and marginal cost (Allocative efficiency)

Technical efficiency

Dynamic efficiency

X-inefficiency

Recall this market type fromprinciples of micro•Large number of buyers

•Large number of sellers

•Homogeneous product

•Potential entrants suffer no disadvantages vis à vis established sellers

By contrast, the market for desktop operating software is a far cry from perfect competition. Microsoft dominates this market segment.