With the nations of the world becoming more interdependent, it is imperative to take international influences into account in understanding the organization of industry within a country. This book extends the structure/conduct/performance framework of analysis to present a fully specified simultaneous equation model of an open economy—Canada.

By estimating a system of equations of all the major variables, the authors can identify which variables are dependent and which are independent. They are thus able to assess the relative importance of such factors as seller concentration, import competition, retailing structure, advertising expenditure, research and development spending, and technical and allocative efficiency in shaping the organization of industry in Canada. In addition, using both industry-level and firm-level data, the authors develop methods for assessing the effect of structural variables on diversification strategies and the consequences for market performance. They also study the effects of such variables on firms’ access to capital markets. The book concludes with a discussion of the implications of the findings for government policy.

In this study of industrial organization, Michael Porter extends the field in three major areas. First, he develops a comprehensive model of the relationship between manufacturers and retailers. The model is used to test hypotheses in such important areas as how consumer products are differentiated, the effects of advertising, and the determinants of profitability in consumer goods manufacturing. Second, he proposes a new perspective for analyzing industry competition which focuses not only on the overall structure of industries but also on the strategies of individual firms within them. Third, he presents a new approach to the theory of consumer demand that emphasizes the consumer's search for information in choosing among brands and the importance of seller information outlays. Statistical tests in a wide sample of consumer goods industries support the new theories advanced here and lead to a major improvement in understanding industry performances.