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Advanced Industrial Economics, 2nd Edition



Advanced Industrial Economics, 2nd Edition

Stephen Martin

ISBN: 978-0-631-21757-2 October 2001 Wiley-Blackwell 552 Pages


This updated and substantially revised 2nd edition, like its predecessor, integrates a discussion of the latest theoretical developments with a comprehensive review of empirical work. With a more cohesive writing style, reduced size, additional invaluable information, and new problems to solve, Advanced Industrial Economics, Second Edition is a key text in industrial economics.

1. Introduction:.

The Scope of the Field.

Theory Versus Empiricism.

Barriers to Entry and the Structure–Conduct–Performance.

A Decade of High Theory.

An Outline of the Book.

2. Foundations of Oligopoly Theory I:.


Cournot in his Own Words.

The Classical Oligopoly Theory Formulation.

Best-Response Functions.



Comparative Statistics: The Number of Firms.

Limiting Behavior.


3. Foundations of Oligopoly Theory II:.


Cournot Duopoly as a Static Game.

Static versus Dynamic? (Nash versus Cournot?).

Conjectural Variations.

The Coefficient of Cooperation.

Representative Consumer Models of Product Differentiation.

Cournot with Product Differentiation.

Bertrand with Product Differentiation.

Prices versus Quantities.

Supply Function Oligopoly.

Two-stage Capacity-constrained Competition.



4. Foundations of Oligopoloy Theory III:.


Beyond Hotelling.

Vertical Product Differentiation.

The Relation between Models of Horizontal and Vertical Differentiation.



5. Early Empirical Studies of Structure–Conduct–Performance Relationships:.


Bain and the Critics.

Early Econometric Work.


6. Debates over Interpretation and Specification:.


Market Power versus Efficiency.

Measurement Issues in the Diagnosis of Market Power.


Firm Effects versus Industry Effects.



7. Empirical Studies of Market Performance:.



Time Series.

Avoiding Cost Data I: NEIO.

Avoiding Cost Data II: The Solow Residual.

Validity Checks.

Event Studies.

Price Versus Rate of Return.

The Persistence of Profits.

Not the Last Word.

8. Strategic Behavior: Investment in Entry Deterrence:.


Excess Capacity.

Switching Costs.

Raising Rivals' Costs.

Predatory Pricing.

Limit Pricing.

Advertising and Limit Pricing.

Animal Farm.



9. Advertising:.

The Dorfman–Steiner Condition and Generalizations.

Advertising as a Signal of Quality.

Welfare Consequences of Advertising.

The Duration of Advertising Effects.

The Advertising Response to Entry.



10. Collusion and Noncooperative Collusion:.


Noncooperative Collusion in a Static Model.

Noncooperative Collusion in Repeated Games.

Price Wars.

Conscious Parallelism.

Facilitating Practices.

Empirical Studies of Collusion.



11. Market Structure, Entry, and Exit:.


The Measurement of Seller Concentration.

Entry Conditions and Market Structure.

Product Differentiation as a Barrier to Entry.

Financial Markets.

Empirical Studies of Market Structure.



Empirical Studies of Entry and Exit.



12. Firm Structure, Mergers, and Joint Ventures:.


Why are There Firms?.

Corporate Governance.

Business Groups.


Horizontal Mergers.

Vertical Mergers and Vertical Foreclosure.

Diversification and Conglomerate Mergers.

The Market for Corporate Control.

Joint Ventures and Equity Interests.



13. Vertical Restraints:.


Incentives to Impose Vertical Restraints.

Empirical Evidence.


14. Research and Development:.


Stylized Facts.

Deterministic Innovation.

Stochastic Innovation.

Absorptive Capacity.


Empirical Studies of R & D.

Final Remarks.



Index of Names.

Index of Subjects.

"This is an outstanding textbook. It covers practically anything one would ever want to include in a lecture course in Advanced IO, and it does so with the perfect blending of rigorous theory and advanced empirical analysis." Gianni De Fraja, University of York, and CEPR

"Stephen Martin's book is a marvellous effort. No other text provides such a comprehensive and updated overview of the literature of modern industrial economics. I wholeheartedly recommend it for graduate courses in the subject or as a reference for any professional economist....

The feature that most distinguishes Advanced Industrial Economics from competitors is the extended treatment of the literature on empirical tests of market structure and performance.

This was long overdue, and Martin has to be commended for introducing new generations of students to empirical work int his field.

As a teaching tool, there is much to admire in the book as well: many of the issues are given a histroical perspective so that students can better appreciate the direction in which both the theory and the empirical work has progressed.

Martin also provides a wealth of material on the book's website, including an extended discussion of the theory of contestable markets as well as a solutions manual." Times Higher Education Supplement, October 2002

Supplementary Material

Download the chapter on contestable markets at:

Download the Solutions Manual:

Typographical Errors:

Download appendix: The Game-Theoretic Approach to Modeling Strategic Behaviour

For more information and material, visit Stephen Martin's website at

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