The research reviews the concept of industrial organization and its applications and considers the real estate investment trust (REIT) industry within the context of the concept of industrial organization. The findings of this research are presented in discussions of (1) the concept of industrial organization, (2) market structure, concentration, and contestability, (3) market structure and performance, (4) production technology and costs, (5) game theory and oligopolistic strategy.
The Concept of Industrial Organization
Industrial organization is considered within the context of market structure. Market structure refers to the character of competition within a product market. Variations in the level of competition occur along a continuum ranging from pure monopoly (highly concentrated markets) at one terminus to pure competition (competitive markets with low concentration) at the polar extreme. Market structure also may be defined within the contexts of (1) the numbers of firms and buyers, (2) product substitution, and (3) barriers to entry and exit (Byrns & Stone, 1993).
A concept that is now under scrutiny is that the resources and competencies of wealth-creating institutions are largely independent of each other; and that individual enterprises are best able to advance their economic objectives, and those of society, by competition, rather than cooperation. While this concept has been severely challenged only over the last decade, for more than a century scholars such as Cournot in 1851 have acknowledged that the behavior of firms may be influenced by the actions of their competitors, and Marshall in 1920 recognized that the spatial clustering or agglomeration of firms with related interests might yield agglomerative economies and an industrial atmosphere, external to the individual firms, but internal to the cluster (Dunning, 1995).
The theory underlying the market structure-performance approach to industry abil...