Topics in Industrial Organization

Before 1970s, IO predominantly follows the paradigm of “structure-conduct-performance”, or often called the Harvard tradition, after Professor Joe Bain. The basic idea is that market structure determines how ...rms behave, which in turn determines the performance of the market. The research methodology is mainly empirical: running regressions on variables of market structures to see their e¤ects on variables such as pro...tability of the industry, etc. The problem is that it does not have a convincing theoretical foundation. The higher pro...tability, for instance, could be due to that ...rms are more e¢cient.