Current Issues in Industrial Economics.

Feinberg, Robert M.

A book of this sort can be evaluated either on its own terms or from the perspective of likely users. The stated motivation of the series editor, David Greenaway, was to provide material for undergraduates on "frontier topics" too new to have filtered through into textbooks. The book is unlikely to succeed in this objective, being too theoretically-oriented and relying on too much mathematics for most undergraduate courses in industrial organization, at least in the United States. Furthermore, most of the references are to works published between 5 and 10 years ago, a good deal of which has appeared in texts (generally targeted to graduate students). However, the book does fill a certain niche, either for graduate students preparing for Ph.D. comprehensives or searching about for dissertation research ideas or for faculty needing to re-tool a bit for the '90s and beyond.

The brief overview and introduction by John Cable sets the stage nicely for the chapters which follow. Cable describes the rise and fall of the structure-conduct-performance paradigm, although he overstates the fall in two respects. One is that much cross-industry empirical work continues to be done, and when done well it matters little whether those performing the work regard themselves as "hypothesis-testing" or collecting "stylized facts." The other is that to many users of the S-C-P framework, it was not a rigid framework, but rather a way of categorizing and describing the characteristics of markets, and even advocates of the "new I. O." continue to frame their discussion in terms of a focus on "conduct" rather than "structure." It is somewhat surprising, given Cable's comments regarding the recent "resurgence of empirical work" in the field, that so little of this work is discussed in this book.

After Cable's introduction, the remaining chapters deal with the theory of the firm, alternatives to the traditional profit-maximizing firm, conjectural variations, welfare implications of various oligopoly models, models of product differentiation, entry and market share mobility, strategic R & D and innovation, regulatory theory, and the econometric analysis of time series in industrial economics. In place of brief remarks about each of these, I will instead focus on my three favorites. The chapter which provides the most value-added relative to other available work aimed at industrial economists is one by J. D. Byers and D. A. Peel, on the newer econometric analysis of time-series data. They include some industrial organization examples in discussing stochastic processes, cointegration, nonlinear dynamics, and chaotic models. These are topics making their way into the current literature; with cross-section empirical analysis having fallen into disfavor, the I. O. researcher has found him or herself more likely to be dealing with time-series data. My only quibble with this chapter is with the absence of any discussion of techniques for dealing with the increasingly-common pooled datasets; of course, not every related topic could be covered.

The chapter by Paul Geroski on entry and market share mobility is a nice blend of theory and empirical methodology, with some discussion of recent results. He gives a systematic discussion of the sources of barriers to entry, separating them into product differentiation, absolute cost, and scale-related advantages experienced by incumbents. Geroski then sketches an empirical framework for examining the determinants and effects of actual and potential entry, followed by a discussion of some results. In the context of the topic of mobility barriers (of which entry barriers are a subset), he notes that data indicating large gross entry and exit flows but little movement in large firm market shares are consistent with the view of entry barriers not as factors barring the door to new entrepreneurs but rather as forces limiting successful entry - i.e., long-term success in the market.

C. D. Fraser's chapter is a useful compilation of "everything you ever wanted to know about conjectural variations" including a fair assessment of the game theory critiques and the static/dynamic inconsistency arguments often made. Fraser also includes Cubbin's interpretation of the conjectural variation more directly as an index of collusion, along with a discussion of some experimental and econometric estimation of conjectural variations.

While not a fault, potential readers should be aware that this book is the product of an almost entirely British group of authors, with (not surprisingly) an emphasis on works by themselves and by other British economists. In certain respects this may be helpful for American students who are not exposed to as much of this work as they should be. However, in certain areas, American work has been ignored. One example, in chapter 2 (by Geoff Stewart) on the theory of the finn, is the complete absence of any reference to the mid-to-late '70s Southern Economic Journal literature by various authors on the consistency of utility maximization and profit maximization by owner-managers.

This book will prove useful for an Industrial Organization economist seeking to move into a new area of research, or seeking to revise a course syllabus, although the references could have been to more recent work. The chapters are all well-written. While obviously not all topics in the field could be included, an important omission is the lack of any discussion of the I.O./international intersection. If Industrial Organization economists are to prevent International economists from taking over this increasingly important area, we will need to recruit some of the next generation of I.O. specialists into this topic area.

Robert M. Feinberg The American University