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the behavior of the market. It could also be defined as a human action in particular with the
relation of the scarce resources. Economic often use a quantitative approach to measure all of
In the economy, there will be different sectors that focuses on different things.
Industrial economics is one of the sector that determines not only the profitability of the
industry but also the approach that the firms should take in order to succeed in that particular
industry. With the help of the industrial economic science, industries especially firms or any
other parties, could choose the best possible outcome they expected.
Game Theory
making in a competitive situation and conflicts under a specified rule. Game theory could be
applied in many different situations such as a prisoner dilemma, oligopoly market, and others.
In the game theory, there will be different situations that will likely occurs and
describe in different types of the game theory. A perfect information type occurs when both of
the players has already had the perfect information among each other. A dominating type
form of game theory is whenever one of the player could have a dominant strategy in which
one of them become worse off and the other always become better off regardless what the
other done. There also a zero-sum game form of the game theory. This form happens in which
all of the players have no advantages from all of moves they make. The sum-payoffs to all
player is zero.
However, In the game theory all of the players could be better of if they could meet
the Nash equilibrium. The Nash equilibrium happens whenever the players recommends
strategy to the other player and thus each player cannot improve by the payoffs unilaterally.
In the Nash equilbrirum, each player asummed rational and follows the recommendation
The new empirical approach defines some of techniques that have been used to
estimate the profitability of the industry. Before the new empirical approach developed, there
was a time when economist use the old empirical approach. Although both of them are
measures the profitability of an industry, the old and the new empirical approach has different
techniques to count the degree of profit. Difference between the old empirical approach in
which the old empirical approach draw conclusions based on the structure of the industry and
their profitability.
The new empirical approach focuses on the econometrics testing of particular aspects
conduct in single industries with the objective of detecting market power or changes in the
collusive-competition behavior of the firms1. This approach could give a structural model that
provide the theoretical analysis about how firms will behave under a different market
structures.
This approach use a tailored economic model for the industry which is being used. Thus, the
economic model is closely tied to the econometrics. The new empirical approach analyses
individual industries among the various types of industries. This approach has been applied
into various types of industries such as the automobiles, rubber, textile, electrical machinery,
tobacco, food processing, banks, coffee, aluminum, retail gasolines, soft drinks, and long
distance telephony2.
The game theory and the new empirical approach both could be applied in various industries
regardless of the types. Another similarities might be the probability of collusion that could
be occur in both of the approach. The differences between both of them is the number of the
industry. The game theory could only be applied on the duopoly market, while the new
empirical approach could be applied on the industries that have several firms. Another
difference between game theory and new empirical approach is the mathematical approach.
The game theory use the basic mathematical calculation to understand the risk and the
opportunity of the strategy. While the new empirical approach use the economic modeling
and econometrics to understand the profitability and opportunity of that particular industry.