Theory of industrial organization: The problem of defining the subject.

Abstract

The object of analysis in the industrial organization theory remains debatable. A comparative approach applied to solve the problem in the study shows that the object in the industrial organization theory is conventionally interpreted as different forms of applied, i. e. industrial, microeconomics. The author views industrial market as a structural component of economy with its own laws of development. If the object of analysis in the industrial organization theory is the industry itself, then the subject should be focused on studying the driving forces which determine the direction of its development. The objects of analysis in the current industrial markets theory and in microeconomic analysis match due to their common methodology – the statistical analysis. Given the industry’s dynamic nature, it would be the most appropriate to reproduce the approach which combines systematic and dynamic methods. This approach demonstrates that industry’s evolution is driven by the resolution of contradictions between the firm and market conditions. The direct cause of market changes are shown to be the changes in the productive forces, and the direct driving force is the firm. While changing, the firm creates new market conditions which accumulate and trigger qualitative transformations of the market, forcing it to adapt to the changes in a new way. An on-going contradiction between them becomes the engine of development for both the industry and the firm. This interpretation of the object in the industrial organization theory and the reproduced methodology used provide ample opportunities for solving two theoretically and pragmatically crucial problems – defining the causes and factors of the industrial markets development, and defining the patterns in product markets development, which allows us to predict the process of market evolution. Further analysis of the internal development will reveal the evolutionary nature of the industries and markets and give some insights into the nature of their interaction with the society’s productive forces and public institutes being the reflections of the production relationships.