Industrial organization, corporate strategy and structure

Abstract

Let us start with a sketch of the relationships to be surveyed in this paper. The large firm sells1 in product markets having structural features that constrain its behaviour and define its options. ‘Market structure’ refers to certain stable attributes of the market that influence the firm’s conduct in the marketplace. Significant elements of market structure include the number and size distribution of sellers and buyers, height of barriers to entry and exit, extent and character of product differentiation, extent and character of international competition (if the market is defined no more broadly than the nation), and certain parameters of demand (elasticity, growth rate). The firm holds tangible or intangible semi-fixed assets or skills. The top managers’ perceptions of the market structure and the firm’s strengths and weaknesses jointly determine their choice of corporate strategy (its long-run plan for profit maximization) and organizational structure (the internal allocation of tasks, decision rules, and procedures for appraisal and reward, selected for the best pursuit of that strategy). Both corporate strategy and organizational structure influence the economic performance of the firm and the market in which it sells.2