Suggestions for incremental change to industrial organisation courses, drawn from the ten building blocks of Economy Studies.
Change often happens incrementally and slowly. In the economics textbook market, for example, there is an unwritten rule that new textbooks cannot differ more than roughly 15% from the standard textbook in order to be ‘acceptable’ (Colander, 2003).
While our book clearly breaks this rule and proposes more far-reaching and fundamental changes in most chapters, in this chapter we focus instead on how existing courses could be adjusted incrementally. By doing so, we hope to assist educators in improving and adapting the courses they teach without needing to rip them up and start again, as well as helping students make suggestions for how this could be done.
First, we set out the typical contents of current courses. Second, we provide our suggested additions and changes. It is important to note that we pose all these suggestions as potential sources of inspiration, not a checklist of all the things that necessarily should be included. After all, there is a practical limit to what can be taught within a single course.
Typical contents of current courses
Courses on industrial organisation generally centre on the neoclassical microeconomics and game theory of how firms behave and interact with each other. The key topic is market imperfection and monopoly power, which come in many shapes and forms from asymmetric information, advertising and barriers to entry and exit, to research and development, vertical integration and capacity constraints. From these issues, the question arises how markets should be regulated and what industrial policy should be pursued. Another application is the designing of auctions and markets.
Frequently used textbooks:
- Industrial Organization: Theory and Applications by Oz Shy
- The Theory of Industrial Organization by Jean Tirole
- Industrial Organization by Don E. Waldman
- Introduction to Industrial Organization by Luis M.B. Cabral
- Modern Industrial Organization by Dennis W. Carlton and Jeffrey M. Perloff
- Industrial Organization: Contemporary Theory and Empirical Applications by Lynne Pepall, Dan Richards, and George Norman
- Industrial Organization by John A. Goddard, John Lipczynski, and John O. S. Wilson
- Industrial Organization by Jeffrey R. Church
- Industrial Organization: Markets and Strategies by Martin Peitz and Paul Belleflamme
- Industrial Economics by R. R. Barthwal
- Industrial Economics by Roger G. Clarke
- Industrial Economics: Economic Analysis and Public Policy by Stephen Martin
- Industrial Organization: Practice Exercises with Answer Keys by Eric Dunaway, Felix Muñoz-Garcia, and Pak-Sing Choi
Suggested additions and changes
Practical skills and real-world knowledge
Industrial organisation courses are in a unique position to embrace a practical approach and real world orientation. The material at hand is well suited to explore and experience in the real world, rather than only in theory. To help make the material come alive students can be given the assignment to work on case studies and visit actual firms and sectors, of course while making use of theoretical ideas. In business education programs, such a more practical orientation and case studies have been prevalent for a long time. Economics courses will, of course, have to give their own twist to this practical orientation as the focus and analytical tools are different, so experimentation should be encouraged.
For more detail, see Building Block 2: Know Your Own Economy and Building Block 9: Problems & Proposals.
A range of analytical tools and approaches
For industrial organisations the economic theories related to markets and firms are relevant. On the topic of firms, the most useful approaches are institutional economics, evolutionary economics and field theory. These perspectives enable students to understand entrepreneurship and innovation, as well as seeing institutional structures as being technical solutions to enhance efficiency and as social structures that stabilise and shape power relations.
For understanding markets, classical, neoclassical and cultural economics seem key. These approaches help students look at markets from a dynamic and static perspective, seeing competition either as a ruthless process or as an optimal outcome, and appreciating how markets are embedded in social structures. Besides these theories related to firms and markets, the young and growing field of industrial ecology, focused on the material and energy flows of industrial systems, can be useful to help students better understand ecological issues related to industrial economics and give them tools to work on adapting those systems.
For more detail, see Building Block 7: Research Methods & Philosophy of Science, Building Block 8: Economic Theories and the sections Firms and Markets in the background material Pragmatic Pluralism.
- A review on circular economy: the expected transition to a balanced interplay of environmental and economic systems by Patrizia Ghisellini, Catia Cialani, and S. Ulgiati, from 2016. This article provides an overview of the literature on the circular economy.
- Economics of Industrial Ecology: Materials, Structural Change, and Spatial Scales by Jeroen C. J. M. van den Bergh and Marco A. Janssen, from 2004.
- The architecture of markets: An economic sociology of twenty-first-century capitalist societies by Neil Fligstein, from 2001. This book introduces students to the field theoretic approach to markets, paying particular attention to institutions, employment systems, corporate governance and globalization.
- Handbook on the Economics and Theory of the Firm by Michael Dietrich and Jackie Krafft, from 2012. This impressive collection of essays introduces students to the wide variety of ideas on the firm, from Marshall and new institutional economics to Schumpeter and the resource-based view.
- Classical vs. Neoclassical Conceptions of Competition by Lefteris Tsoulfidis, from 2011. A useful article introducing students to the two main opposing perspectives on markets: the dynamic process view and static equilibrium view.
- Capitalism: Competition, Conflict, Crises by Anwar Shaikh, from 2016, chapters 4 & 6-9. This impressive and extensive book compares theories and empirics on many traditional economic topics including production, competition and prices.
- Introducing a New Economics by Jack Reardon, Maria A. Madi, and Molly S. Cato, from 2017, chapter 10. This ground-breaking textbook introduces firms and industries and weaves together pluralist theory and real-world knowledge.
- Economics After The Crisis by Irene van Staveren, from 2015, chapters 4-5. This well-written textbook sets out the neoclassical, post-Keynesian, social economic and institutional perspectives on markets, the firm and management.
- The Economy by The CORE Team, from 2017, chapter 6, 8, & 11-12. This successful textbook introduces students to the economics of market competition, the firm, and labour.
- The Handbook of economic sociology by Neil J. Smelser & Richard Swedberg, from 2005, chapters 11 & 19-21. This extensive and yet accessible book for non-sociologists, provides an impressive and useful overview of the field of economic sociology, including chapters on markets, the role of firms, business groups, and entrepreneurship in the economy.
- Economics: The User’s Guide by Ha-Joon Chang, from 2014, chapter 7. This brief and accessible pluralist book contains a useful introductory chapter on the world of production.
- The Routledge Handbook of Heterodox Economics: Theorizing, Analyzing, and Transforming Capitalism by Tae-Hee Jo, Lynne Chester, and Carlo D’Ippoliti, from 2017, chapters 14, 25 & 35. This broad and diverse book sets out a variety of theories on business enterprises, labour processes and full employment.
- The Microeconomics of Complex Economies: Evolutionary, Institutional, Neoclassical and Complexity Perspectives by Wolfram Elsner, Torsten Heinrich, & Henning Schwardt, from 2014, chapters 5-7 & 16. This innovative textbook makes readers familiar with new insights coming from frontier mainstream economic research, with chapters devoted to new insights coming from frontier mainstream economic research and critiques of neoclassical theory.
- Principles of Economics in Context by Jonathan Harris, Julie A. Nelson and Neva Goodwin, most recent edition from 2020, chapters 17 & 18. This useful textbook, which pays particular attention to social and environmental challenges, contains two chapters on markets with and without power.
Institutions and different ways of organising the economy
It is an illusion that there is just one way, perhaps the ‘natural’ way, of doing business. There is a wide variety between countries in how their economic organisations and sectors are structured and run. It is crucial that students gain knowledge of this organisational variety to prevent them from misjudging situations in their future work because of unfamiliarity with an organisational form. Furthermore, it can stimulate their creativity by exposing them to more possibilities in terms of how economic processes can be organised.
Over the last decades, shareholder business models were dominant. Recently many firms are starting to move away from this business model, instead embracing a stakeholder value model, social entrepreneurship, or a circular business model. This movement in the real world is also increasingly motivating economists to think about and analyse such business models. Exploring these newer forms of economic organisation can be particularly important in ensuring that students’ knowledge is still relevant in twenty years from now.
For more detail, see Building Block 5: Economic Organizations & Mechanisms and the section Firms and Business Cycles in the background material Pragmatic Pluralism.
- Contemporary Capitalism: The Embeddedness of Institutions by J. Rogers Hollingsworth and Robert Boyer, most recent edition from 2012. An instructive analytical introduction and overview of different coordination and allocation mechanisms, such as markets, public and private hierarchies, networks, communities and associations.
- Handbook of Economic Organization: Integrating Economic and Organization Theory by Anna Grandori, from 2013, part VI. A useful collection of essays on economic organization, with eight chapters devoted to different forms of economic organizations such as cooperatives, networks, and public organizations.
- Industrial Relations: Theory and Practice by Michael Salamon, most recent edition from 2000. This textbook introduces students to the various theoretical and normative approaches to industrial relations as well as its different actors and institutions.
- The SAGE Handbook of Industrial Relations by Paul Blyton, Edmund Heery, Nicolas Bacon, and Jack Fiorito, from 2008. This impressive interdisciplinary collection of essays covers many aspects of industrial relations, from its various theories, changing institutions, the interactions between governments, employers and workers, and the outcomes in terms of pay, wellbeing, inequality and business performance.
- Industrial Relations: Theory and Practice by Paul Edwards, most recent edition from 2009. This collection of essays, written from the British perspective, provides a comprehensive discussion of industrial relations, from the labour market and management practices to government policy and the public sector.
- Foundations of Sustainable Business: Theory, Function, and Strategy by Nada R. Sanders and John D. Wood, from 2014. This book introduces students to questions related to sustainability and business, management, finance, accounting, and marketing.
- Sustainable Business Models: Principles, Promise, and Practice by Lars Moratis, Frans Melissen, and Samuel O. Idowu, from 2018. This collection of essays explores the different ideas and cases of sustainable business models.
- Business Models for the Circular Economy: Opportunities and Challenges for Policy by OECD, from 2019. This report explores circular business models and their scalability, as well as their environmental impacts and related policy implications.
- Circular Business Models: Developing a Sustainable Future by Mats Larsson, from 2018. A book on how to make businesses and economies circulair, with attention to different aspects, sectors and potential solutions.
- Understanding Social Entrepreneurship: The Relentless Pursuit of Mission in an Ever Changing World by Jill Kickul and Thomas S. Lyons, from 2012. This textbook introduces students to what social entrepreneurship is and what its key challenges are, from setting up the right organizational structure and funding to recognizing opportunities and measuring impact.
Societal relevance and normative aspects
The behavior of firms is not merely a technical object of study, but also a central matter of normative debate in the public sphere. How should firms behave and be allowed to behave? What goals should the government pursue with its competition and industrial policies? What are the rights and obligations of the various stakeholders of firms, from shareholders and external investors, to workers, customers, suppliers, surrounding communities and society at large? Does it benefit society to give shareholders a monopoly over the governing of firms or is it better to give other stakeholders also a voice in decision making processes? These matters are closely related to the different ways in which firms and economic sectors can be organised, as discussed above. For this reason, it can be particularly informative to systemically connect the normative arguments to the different organisational forms and empirical evidence about them.
For more detail, see Building Block 1: Introducing the Economy and Building Block 10: Economics for a Better World.
- The Oxford Handbook of Ethics and Economics by Mark D. White, from 2019, chapter 16. This extensive collection of essays explores the many moral dimensions of economics, including a chapter on the moral status of profit.
- Firms as political entities by Isabelle Ferreras, from 2017. This informative book looks at the power dynamics within companies and advocates for founding corporate governance on bicameralism, meaning that capital and labour are represented through two chambers and together run the company.
- The shareholders vs. stakeholders debate by H. Jeff Smith, from 2003. This useful article introduces students to the debate about whether companies should aim to maximize shareholder value or serve the interests of all stakeholders.
- Stakeholder Theory: The State of the Art by R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L. Parmar, and Simone de Colle, from 2010. This book introduces students to the stakeholder theory, its history, future, ethics, and its relation with capitalism at large and the various aspects of business, such as finance, management, accounting and marketing.
- Milton Friedman 50 Years Later by Luigi Zingales, Jana Kasperkevic, and Asher Schechter, from 2020. This online freely available collection of articles on the shareholder-stakeholder debate helps students understand the different positions in the debate, including an up-dated defense of Milton Friedman’s argument for shareholder capitalism.
- Change Everything: Creating an Economy for the Common Good by Christian Felber, from 2010. An innovative book arguing the economy, firms and banks should be organized around the concept of the common good.
- Democracy at Work: A Cure for Capitalism by Richard D. Wolff, from 2012. A provocative book arguing that the solution to today’s economic problems is the democratization of workplaces through workers’ self-directed enterprises.
The history of industry and business is a fascinating and informative matter that can enrich courses on industrial organisation. It can show students how todays’ industrial and market structures have come about, but also expose them to the variety of organisational forms that have existed throughout history over the world. Furthermore, good history can be a great antidote to theoretical simplifications and ideologically-driven stereotypes, as it often brings out the complexity, importance of context and changeability of the real world. Learning some history may be the best way to prepare students for living and working in a rapidly changing world.
For more detail, see Building Block 3: Economic History.
- Business History Around the World by Geoffrey Jones and Franco Amatori, from 2003. This useful collection of essays covers the history of business with some chapters devoted to general and theoretical issues, such as production governance, family firms, multinationals, and relations with the government, and others devoted to specific regions, such as Latin America, China and Scandinavia.
- European industrial policy: The twentieth-century experience by James Foreman-Peck and Giovanni Federico, from 1999. This informative book guides students through the industrial histories of the different European countries, from Germany and Spain to Russia and Sweden.
- The Oxford Handbook of Business History by Geoffrey G. Jones and Jonathan Zeitlin, from 2008. This extensive collection of essays covers many different aspects of business history, from different theoretical perspectives and the diverse functions of firms to the various forms of business organization and their relation to the wider society.
- The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times by Joel Mokyr, David S. Landes, Joel Mokyr, and William J. Baumol, from 2010. This impressive collection of essays covers the long history of firms, from ancient Mesopotamia and Rome to modern Britain, China and Japan.
What to take out
To create space for the above suggested additions, we advise to focus more on the key ideas and intuitions behind the taught models and devote less teaching time to their technicalities and mathematics. As teaching students to reproduce and work through mathematical models often takes up a large part of the teaching time, this would give the teachers the opportunity to devote more time to practical knowledge, the relevance, institutions, and history. Furthermore, a more even balance between neoclassical economics and game theory on the one hand, and other economic approaches on the other, could be achieved by decreasing the number of neoclassical ideas and models that are taught.