And even to take most of the consulting gigs.įurthermore, academic economists have drifted away from industrial organizations it is no longer in fashion. We’ve instead allowed business schools to do that teaching, and to take that credit. We don’t teach courses in business strategy, and we don’t recommend students who take our industrial organization courses for such roles. So we economists have in fact developed powerful tools that are very useful, and are widely being used.īut, alas, we economists are failing to take credit for it. And firms are in fact constantly reconsidering their business strategies using such concepts. Today, most who discuss business strategy do so using concepts and distinctions that are well integrated into this rich well-developed and useful econ account of how firms in industries compete. And much, perhaps even most, of this has happened within the econ field of “industrial organization.” And we’ve worked out a great many specific models of how small sets of these factors work together to create distinctive patterns of industry competition. Key ways in which industries differ, that result in different styles of competition. And we’ve identified dozens of key factors that influence industrial competition. In particular, game theory has become a robust general account of how social decisions are made. Furthermore, economics has been central to that story. And in the last century, the world has made great progress in developing better general theories of how firms compete in industries. There are in fact many common patterns in key industry features, and in the ways that industries compete. Now many aspects of useful industry theories are quite context dependent. Such theories might be simple, or wrong, but they are there. In fact, all such analyses are based on at least implicit theories of how local industries work. And while all these choices might seem to be done without theories, that is an illusion. In addition, new firms pitch their plans to investors, and frequently revise such plans. With such a theory, one can predict which actions might be how profitable, and choose accordingly.įirms today regularly debate key business choices, and hire management consultants to advise those decisions. A theory that says who wants what, who can take what actions when, who knows what when doing what, and how each actor tends to respond to their expectations re other actions. A theory of its customer demands and producer costs. When a firm considers what products or services to make, what customers to seek and how, and what prices to charge, it can help to have a theory of that firm’s industry.
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But we’ve failed to claim sufficient credit for this, and now we seem to be dropping the ball in pursuing it. Now it turns out that we economists have actually found a way to be frequently and directly useful to diverse clients, and via being right, not just impressive. What we want is a track record of being, not just impressive, but directly and clearly right, and useful because of that. And the fact that people like to point to our analyses to support their policies only shows that we have prestige, not that we are right. But that may only show that learning our methods is an impressive feat, not that we produce reliable results. Yes, econ majors in college are among the best paid outside of computers and engineering. For example, the world listens to chemists, computer scientists, and engineers in part because of their widely-known reputations for having long track records of being directly and simply useful to diverse clients. There are many relevant factors, but a big one where we might do better is: a track record for being useful.
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But while the world respects economists enough to mention when their analyses support favored policies, people are much less interested in deciding what to favor based on econ analyses.
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And the world would probably be better off if it listened to economists more.
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Economists know many useful things about human social behavior, and about how to improve it.