Efficiency Measures for Industrial Organization

  • Thijs ten Raa


The aim of the paper was to measure the efficiency of an industry and to decompose it in firm efficiencies—which indicate how close firms approximate best practices—and an organization efficiency—which indicates the degree of optimality of the number of firms and their distribution. The latter component provides an efficiency measure for the industrial organization. Economies or diseconomies of scale and of scope play a big role in the determination of the optimal industrial organization and the consequent measurement of the efficiency of an observed industry. Different approaches to the modeling of scale economies will be reviewed. This paper shows in detail how the efficiency of an industrial organization can be measured as a gap between mean firm efficiency and overall industry efficiency. The analysis is extended to dynamic models to measure the role of entry and exit in the efficiency of the industrial organization.


Data Envelopment Analysis Industrial Organization Constant Return Shadow Price Variable Return 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



I am grateful to editor Subhash Ray for numerous comments and suggesting to let the static efficiency model encompass productivity growth analysis.


  1. Afriat, S.N. 1972. Efficiency estimation of production functions. International Economic Review 13(3): 568–598.CrossRefGoogle Scholar
  2. Banker, R.D., A. Charnes, and W.W. Cooper. 1984. Some models for estimating technical and scale inefficiencies in data envelopment analysis. Management Science 30(9): 1078–1092.CrossRefGoogle Scholar
  3. Baumol, William J. 1977. On the proper cost tests for natural monopoly in a multiproduct industry. The American Economic Review 67(5): 809–822.Google Scholar
  4. Baumol, W.J., John C. Panzar, and Robert D. Willig. 1982. Contestable markets and the theory of industry structure. New York: Harcourt Brace Jovanovich.Google Scholar
  5. Färe, Rolf, Shawna Grosskopf, and James Logan. 1983. The relative efficiency of illinois electric utilities. Resources and Energy 5(4): 349–367.CrossRefGoogle Scholar
  6. Førsund, Finn R., and Lennart Hjalmarsson. 1974. On the measurement of productive efficiency. The Swedish Journal of Economics 76(2): 141–154.CrossRefGoogle Scholar
  7. Francis, Graham, Ian Humphreys, and Jackie Fry. 2005. The Nature and prevalence of the use of performance measurement techniques by airlines. Journal of Air Transport Management 11(4): 207–217.CrossRefGoogle Scholar
  8. Hicks, J.R. 1935. Annual survey of economic theory: the theory of monopoly. Econometrica 3(1): 1–20.CrossRefGoogle Scholar
  9. McKenzie, Lionel W. 1959. On the existence of general equilibrium for a competitive market. Econometrica 27(1): 54–71.CrossRefGoogle Scholar
  10. ten Raa, T. 2011. Benchmarking and industry performance. Journal of Productivity Analysis 36(3): 285–292.CrossRefGoogle Scholar
  11. Sharkey, W.W., and Lester G. Telser. 1978. Supportable cost functions for the multiproduct firm. Journal of Economic Theory 18: 23–27.CrossRefGoogle Scholar
  12. Yli-Viikari, A., Risku-Norja, H., Nuutinen, V., Heinonen, E., Hietala-Koivu, R., Huusela-Veistola, E., Hyvönen, T., Kantanen, J., Raussi, S., Rikkonen, P., Seppälä, A., and Vehmasto, E. 2002. Agri-environmental and rural development indicators: a proposal. Agrifood Research Reports 5, MAA Agrifood Research Finland.Google Scholar

Copyright information

© Springer India 2015

Authors and Affiliations

  1. 1.Tilburg School of Economics and ManagementTilburg UniversityTilburgNetherlands

Personalised recommendations