ABSTRACT
This chapter examines the rapidly expanding links between the International Economics and Industrial Organization. It should become apparent that any thorough understanding of a modern industrial economy requires an understanding of the large impact that foreign competition has on domestic markets. International trade theorists typically dealt with models of perfect competition and ignored the effects of monopoly and oligopoly. Similarly, industrial organization economists tended to treat the international sector as a minor sidelight. Fortunately, conditions have changed rapidly in both fields with the introduction of many industrial organization models applied to situations of international competition. Foreign firms, led by the Japanese, initially concentrated their efforts on the small-car market, in which they were particularly adept at taking economic advantage of large increases in demand caused by the rapid rise in oil prices in the 1970s. In both the steel and automobile industries, increased foreign competition resulted in reduced prices.
