Elements of Market Structure: An Inter-Industry Analysis

Abstract

If market structure affects the profitability of enterprises, it is likely to do so in complex patterns. Theory suggests that structure may contain at least several main elements, but it has not yet defined precisely their relative importance and inter-relations (see Bain [2], Scherer [16], Shepherd [17]). Since theory is indeterminate, it is not surprising that four decades of econometric studies have yielded an imperfect consensus. Statistical indications of certain relationships-primarily between concentration and industry profitability-have gradually emerged, but they have been weak and insecure by substantive criteria (see Weiss [25], Collins and Preston [4], and Stigler [20]). Since 1960, four recent studies have tended to undermine the consensus, rather than strengthen it. Mann [14] found concentration and entry barriers both to be determinants of profitability but was unable to separate their roles. Collins and Preston's [5] analysis of concentration and price-cost margins in 1958 and 1963 yielded unexpectedly wide and erratic variations in the presumed patterns. Hall and Weiss's [11] study of large firms led them to rank size ahead of concentration as a structural determinant of profitability. And Comanor and Wilson [6] stress advertising intensity as a primary determinant of profitability. An inclusive analysis of all these elements may help to clarify their joint relationships. A current study of firm shares, concentration, barriers, size and advertising-intensity (Shepherd [181) has attempted such an ordering. Using data on 231 large U.S.