The Nature of the Concentration: Price/Cost Margin Relationship for 352 Manufacturing Industries: 1967

Abstract

During the past decade there have been an increasing number of empirical investigations into the relationship between industry structure and performance. These studies (the landmark work in this area is Bain [3] and other important studies include Stigler [27], Miller [19], Comanor and Wilson [8], and Collins and Preston [7]) have provided almost unanimous support for the hypothesis that industry structure is an important determinant of industry profit performance.1 In view of the fact that these studies have used a wide variety of data sources and testing techniques, the general consistency of results is quite impressive. Nonetheless, students of industrial organization who attempt to apply these results to questions of antitrust policy find serious gaps in our knowledge of market competition, which unfortunately hinder the development of a rational antitrust policy. One important area of uncertainty and disagreement centers on the nature of the relationship between industry concentration and profitability.2 The basic question is whether the concentration-profitability (C-P) relationship is continuous and linear or whether it is subject to a distinct break at some critical level of concentration. Only a few studies have given even peripheral attention to this question, and they have yielded conflicting results.3 Because of the limited evidence on this question and because of its potential importance to the formulation of antitrust policy, a detailed examination of the problem is needed.4 This study presents new empirical evidence on the nature of the concentrationprofitability relationship. The analysis is based on nearly the entire universe of manufacturing industries for which data were available from the recently published 1967 Census of Manufactures. To examine the more general structure-performance hypothesis with the new Census data, several additional independent variables are in-