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This paper examines a structural theory of industrial organization and operation. The analytical approach taken is largely based on the premise that industry is embedded in the social structure of market competition. Moreover, imperfect competition and industrial resource dependence are composed of and reflected in interindustrial transaction patterns. Using network models of imperfect competition, this study explains the determinants of Israeli industrial performance. The first part of this paper inquires into the structure of interindustrial relations using structural equivalence as a diagnostic tool. In the second part structural determinants of industrial profitability are estimated. Profitability is predicted by the degree of control an industry has over its domestic transactions and its linkage to the world economy. Implications of this study for the theoretical models of social competition and for an empirical analysis of markets and firms are discussed. [ABSTRACT FROM AUTHOR]

Corporate innovation is often argued to result from, and be encouraged by, market competition. The tradition is to test such arguments with market concentration data; firms with stronger control over their market can afford the long-run investment of R&D. Network theory has broadened our understanding of how competition is a function of structure within and beyond a market. Producers earn high profit margins to the extent they are few and their customers and suppliers are many and disorganized. The first condition is measured by the traditional concentration ratio for a market. The second condition is measured by the network constraint of suppliers and customers. My purpose in this paper is to describe how our understanding of the market competition effect on innovation is enriched when the concentration measure of market competition tradition in economics is replaced with the network model of market competition now prevalent in sociology. Results indicate that markets facing competitive environments, in high constraint market positions, show greater R&D intensity and faster rates of innovation than do industries facing less competitive pressure. These effects persist even with controls for technological opportunity and appropriability, in contrast to traditional models using only concentration data to measure competition. [ABSTRACT FROM AUTHOR]