Trends in Industrial Market Concentration, 1947 to 1970

Abstract

ECONOMISTS have been alternately fascinated and frustrated with industry or market concentration ratios ever since they were first calculated from census data for the Temporary National Economic Committee for 1937. They are fascinated because concentration ratios are the single best available index of the degree of oligopoly. The frustration stems from the absence of precise coincidence between the Standard Industrial Classification System (SIC) used by the Bureau of the Census and economically relevant markets. Yet, when all is said and done, most industrial organization economists agree that concentration ratios based on SIC industries not only are the best available, but provide useful measures of one dimension of the extent of oligopoly in American industry.1 This is not to imply, of course, that market concentration is the only index of oligopoly or market power. Economic theory suggests and empirical studies verify that entry barriers, product differentiation, firm conglomeration, among others, also may influence firm conduct and industrial performance. But changes in industrial concentration are uniquely significant because often they reflect, at least partially, changes in other structural variables as well. For example, if entry barriers are declining, because of growing markets or whatever, this tends to become reflected in lower concentration ratios. Hence changes in market concentration may also reflect what is happening to other structural variables affecting the discretionary power of sellers. We shall not here argue the question of whether or not concentration ratios are meaningful indices of market structure or whether they are causally related to industrial performance. Those assuming that the answer to both questions is yes, gain aid and comfort from the most comprehensive review of the empirical evidence on the subject.2