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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 SCPparadigm The SCP-paradigm: Basic Conditions Market Structure Conduct Performance 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