Market Structure And Multiproduct Industries

Abstract

TRADITIONAL ECONOMIC ANALYSIS of the theory of the firm has concentratedon single-product firms. But, in reality, most businesses producemany products, and many regulatory and antitrust issues involve onlythese enterprises. In recent years, economists and policymakers dealingwith antitrust and regulatory issues have increasingly recognizedthe need for a theory that can be used to evaluate the efficiencyof market structures in industries dominated by a few firms operatingin a diverse range of markets. For such firms, conventional conceptsof structure and performance such as economies of scale, measuresof concentration, and barriers to entry do not adequately capturethe complexity of market relationships. While these represent onlya small fraction of the regulatory and antitrust issues that haveheaded the policy agenda of regulatory agencies, the Justice Departmentand Congress over the past decade, they should indicate the importanceto economists of learning to understand why firms come to have thescale and product composition that they do, how the market operatesin the typical multiproduct context, and the welfare and regulatoryimplications of such firm and market behavior. The complexity ofthese behavioral relationships should indicate that simple notionsof efficiency related to the scale of output are insufficiently powerfulto be generally relevant, and that the composition of output is asimportant as its scale in determining costs. To enhance the processof dissemination, therefore, we undertake in this paper to summarizeand interpret the new theoretical tools and concepts, to show howthese provide a way of thinking about important industrial organizationissues with precision, and to discuss their empirical implementationand relevance for policy.