TABLE OF CONTENTS Overview by Mitchell Berlin
Federal Reserve Bank of Philadelphia
The contributions in this section address the theory of intermediation from an industrial organization perspective. The following three chapters are surveys of recent research on the traditional core questions in industrial organization as applied to financial intermediation. What factors determine the boundaries, size, and internal structure of firms? How does market structure affect the strategies and performance of firms? Of course, these questions are interrelated. In any industry, equilibrium firm size and structure affect the equilibrium market structure and performance, and vice versa.
Why, then, should you read these chapters rather than turn directly to the Handbook of Industrial Organization? One of the hard-won insights of the last 25 years of progress in industrial organization is that although game theory and contract theory provide useful unifying frameworks for thinking about many of the traditional questions in industrial organization, very few general statements apply, in general, across industries. We can learn about an individual industry only by detailed theoretical and empirical studies of the industry itself, and the financial services industry is no exception.
Two features of the financial services industry must be taken into account by all researchers in the field:
Financial intermediaries are intimately involved in the production and interpretation of information, which economists have long...
