chapter  16
13 Pages

DETERMINANTS OF INDUSTRY STRUCTURE AND CONTESTABLE MARKET THEORY

WithWilliam J. Baumol

The structure of an industry is generally acknowledged to affect profoundly the behaviour of prices and outputs in the theory of the market, and it acts as a critical determinant of the performance of the individual enterprise in the theory of the firm. It substantially affects our evaluation of an equilibrium in welfare economics and plays a key role in analyses of the appropriate role of government intervention in the operations of firms and industries. Industry structure is not, of course, determined by chance, and is presumably profoundly affected by economic influences. Yet, until fairly recently, the main body of economic theory proceeded as though it were exogenously determined-as it were, imposed upon the economy by forces or entities unknown.