Industrial Analysis Revisited

In the development of modern economic thought, industrial analysis appears to have been abandoned as a field for economic theory. Empirical studies of industries continue to be made but there is no theoretical attention to the industry level of analysis. It was always considered inadmissible, of course, by the theorist trained in the tradition of general equilibrium analysis, where the price of anything depends on the price and quantity produced of everything else, and every commodity is in competition with every other commodity for the consumer’s dollar. The general equilibrium approach, true in itself, is not helpful when we wish to use theory to study the supply of commodities. There used to be a a tradition of partial equilibrium analysis, handling the industry, which went back to Marshall. Marshall ostensibly handled ‘competitive’ industry, and he appears to have included in that category everything except statutory monopolies; but he did not develop a complementary theory of the firm, falling back on the construct of the representative firm when necessary. Later theorists pushed the logic of Marshallian competition to ‘perfect competition’ and thence to the equilibrium of the individual firm as well as of the industry; but in the process, of course, the ‘industry’ became h emasculated to a rigid and restrictive definition of a large number of sellers all selling a homogeneous product.