Theoretical issues

Primary aim: Principal perspectives on ip-analysis in view of Industrial Economics

Industrial Economics:

Mainstream micro-eonomic theory applied to ip

Recent improvement: The New Institutional Economics based on Coase’s and Williamsons Tranasaction Cost Approcah

Controversies concerning the industrial dynamics: Evolutionary economics a new field

The New Industrial Economics’ contributions to IP:

• Models of perfect competition not realistic – Competition Policy

• By means of game theory and theory of imperfect competition a neo-classical foundation of the SCP-paradigm

The SCP-paradigm:

BasicConditions

MarketStruc-ture

Con-duct

Per-for-mance

Criticism of the SCP-paradigm:

• Technological change exogenous (“Basic condition”)

•Trade-off between allocative and technical efficiency

•The causality

Other critics of the SCP-paradigm:

Strategic Trade Policy

• Assumption about imperfect competition

• Perspective altered from ‘sector’ to ‘firm’

• Strategic choices by the firm

• Competitive advantages (“barriers”) created through IP

Porter’s Diamond

Evolutionary Economics:

Controversies between Industrial Economics (IE) and Evolutionary Economics (EE)

- While IE focuses on price competition, advocates of EE argue that firms compete with new technology and innovation (Schumpeterian competition)

- In EE premises such as perfect information, knowledge and foresight are misleading (critical to the understanding of ‘monopoly’)

The Austrian School (Schumpeter)

• Procedural rationality – The rationality of the firms varies with information and ability to interpret information

• The market – A continuous process of discovering, coordination and change

• The entrepreneur – alert to new market opportunities by creating information, knowledge and development

• Entrepreneurial profit – is eliminated as innovations are imitated.

Transaction-cost theory of organization (The new institutional economics)

Organizational development (transactions inside firms or through markets) is optimized:

Minimize (production + transaction costs) subject to - Incomplete contracts - Opportunistic behavior (self-interest, incorrect information) - Preferences are given