Contracts, Ownership, and Industrial Organization: Past and Future

Abstract

We review the formal literature in industrial organization that incorporates organizational models of the firm into the analysis of industry behavior. Although many insights have been generated, this "organizational industrial organization'' is still in its early stages: a complete theory of the relationship between organizational design and traditional IO variables such as price, quantity or welfare has yet to be developed. We show how the insights emanating from the incomplete contract literature can be used to address these questions and others of interest to both IO and organization economists: endogenous heterogeneity; the role of liquidity and surplus division in organizational design; the relationship between product price, industry supply and organizational choices; the response of industry supply to shocks in fundamentals.