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Industry concentration-profitability relationship and competition policy: is there a critical concentration level?

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  • Ravi Ratnayake

Abstract

The critical concentration hypothesis that there exists a threshold level of concentration which separates industries into two regimes in terms of profits has been tested empirically using the single-equation approach, ignoring the simultaneity involved in the determination of profits across industries. The majority of previous studies found supportive evidence for the hypothesis. This paper employs a simultaneous equation model to examine the concentration-profitability relationship and casts serious doubt on the existence of any such critical threshold.

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  • Ravi Ratnayake, 1996. "Industry concentration-profitability relationship and competition policy: is there a critical concentration level?," Applied Economics Letters, Taylor & Francis Journals, vol. 3(9), pages 611-614.
    • Handle: RePEc:taf:apeclt:v:3:y:1996:i:9:p:611-614
    DOI: 10.1080/135048596356078
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    1. Joe S. Bain, 1951. "Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936–1940," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 65(3), pages 293-324.
    2. Geroski, P A, 1981. "Specification and Testing the Profits-Concentration Relationship: Some Experiments for the UK," Economica, London School of Economics and Political Science, vol. 48(191), pages 279-288, August.
    3. Geithman, Frederick E & Marvel, Howard P & Weiss, Leonard W, 1981. "Concentration, Price and Critical Concentration Ratios," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 346-353, August.
    4. Saving, Thomas R, 1970. "Concentration Ratios and the Degree of Monopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(1), pages 139-146, February.
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