On Market Theory

In Anglo-Saxon countries ‘industrial organization’ is the label given to the study of the organization of industries. In some continental European countries this field of studies bears the name of ‘économie industrielle’, a misnomer which literally translates as the economics of manufacturing industry. In several European countries, however, the subject is called ‘Markttheorie’ or market theory and this, to my mind, is a better expression. The label of market theory indicates that it is not just the supply side of markets which is the subject of analysis, but the demand side as well. That marks the difference between an industry (composed of suppliers only) and a market. Beyond that conceptual difference, a point of substance is that the traditional industrial organization theory hardly discusses the relationships between supply and demand. Whether supply exceeds demand or vice versa, either on a long-term, short-term or intermittent basis, is of major importance and mostly more decisive for an industry’s performance than a statically conceived market structure. Thus, the field of studies labeled as market theory has to be differentiated from traditional micro-economic price theory because it has its own research agenda, no longer focusing so much on timelessness, equilibrium, price and quantity of output, but rather on the structures and processes of markets in an interactive way as time proceeds.