Summary of IO Papers (by O. Williamson)

Original article (link) posted:18/10/2005

Industrial Organization (edited by O. Williamson) contains 23 important IO papers in the literature. The below is the list of short summaries of selected papers written by the editor, O. Williamson which are quoted from the ‘Introduction’. Since most of the papers are still relevant and must-read for IO researchers, the list may be a helpful guide for you. Please enjoy it!

Alchian (1950) “Uncertainty, Evolution, and Economic Theory”
The paper is significant in several directions. For one thing, selection arguments play a large role in virtually all forms of long-run competitive analysis. Second, the use of simplifying assumptions of an ‘as if’ hyperrationality kind can sometimes be justified by invoking selection arguments. And third, Alchian’s treatment of evolutionary issues is insightful and is carefully nuanced.

Holmstrom (1982) “Moral Hazard in Teams”
The author extends earlier work of a principal/single-agent kind to include relations between multiple agents in teams. The paper develops a sufficient statistic condition on relative performance evaluation according to which competition among agents is not valued because it induces added effort but rather than because it is a device to extract information optimality.

Grossman and Hart (1986) “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration”
Although the formal modeling of incomplete contracting is formidably difficult, the paper develops a model in which both ex-ante alignment and ex post adaptation differences between market and hierarchical models of organization are recognized.

Dixit (1980) “The Role of Investment in Entry-Deterrence”
The paper sets out the basic logic and demonstrates the critical importance of investments in durable, nonredeployable assets to effect entry deterrence. Given credible pre-entry commitments, the logic of entry barriers was made secure. But inasmuch as a duopoly setup is highly specialized, the empirical significance and antitrust enforcement ramifications of the argument can be questioned.

Aghion and Bolton (1987) “Contracts as a Barrier to Entry”
What the paper examines is whether an incumbent supplier can fashion a penalty clause, the effects of which penalty make the incumbent better off. It is shown that penalties can be devised such that lower cost entrants can be deterred – although not necessarily precluded – from entering.

Milgrom and Robertes (1982) “Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis”
The use of limit pricing here turns on an information asymmetry between the sitting monopolist (or incumbent) and the potential entrant. Whereas the incumbent knows its costs, the potential entrant can only infer them. The incumbent would like to signal to the potential entrant that it has low costs, thereby to deter entry. Although it can do this by setting a low price, the entrant is alert to the strategic nature of the game and redcognizes that signaling can be used for strategic purpose.

Kreps and Wilson (1982) “Reputation and Imperfect Information”
The paper shows that the introduction of a small amount of imperfect or incomplete information can transform such a game into one whereby monopolists strategically contest entry. The logic of unraveling gives way to a logic of reputation in an intertemporal framework into which imperfect information has been introduced.

Baumol, Pazner and Willig (1986) “On the Theory of Perfectly-Contestable Markets”
The paper summarizes the central arguments of their influential book and advances the argument that the perfectly contestable market – that in which asset-specificity is negligible, whence assets are easily redeployable to alternative uses and by alternative users – is usefully regarded as an analytical and public policy benchmark.

Salop (1979) “Monopolistic Competition with Outside Goods”
The author uses a spatial competition model to investigate monopolistic competition. Salop’s treatment nicely displays the key features of a monopolistically competitive contest in a spatial equilibrium setting.