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Market Structure and Profits, Market Power and Cournot: A Comment

Market Structure and Profits, Market Power and Cournot: A Comment 248 WILLIAM G. SHEPHERD correlated with the firms’ rates of profitability on capital. The slope coefficients were about 0.2, and the t -ratios were often over 5 or 6, indicating strong statistical significance. These market-share correlations superseded the concentration-price research by offering more precision of concept as well as of data. They focused the econometric analysis down more closely onto each firms’ specific market positions and motiva- tions: that is, onto the things that firms care most directly about – their own market positions and their own profits. That focus fits also the rising interest in the 1980s about dominant firms (as in Hay and Vickers, 1987). The market-share focus contrasted with the vague oligopoly-based hypotheses about joint-maximizing, entry-limited prices, and industry-wide price-cost ratios. But even when the structure-profit patterns were clear and strong, they could be re-interpreted in an upbeat way which took market power out of the picture. Chicago School members argued that all the structural findings – both the concen- tration-to-price and the market-share-to-profit-rate correlations – might merely re- flect superior performance. Or rather, they said, good performance really was the real cause, in nearly all cases – or actually in all of them. Hence the http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Market Structure and Profits, Market Power and Cournot: A Comment

Shepherd, William
Review of Industrial Organization , Volume 16 (3) – Oct 16, 2004
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References (9)

Publisher
Springer Journals
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
DOI
10.1023/A:1007878024734
Publisher site
See Article on Publisher Site

Abstract

248 WILLIAM G. SHEPHERD correlated with the firms’ rates of profitability on capital. The slope coefficients were about 0.2, and the t -ratios were often over 5 or 6, indicating strong statistical significance. These market-share correlations superseded the concentration-price research by offering more precision of concept as well as of data. They focused the econometric analysis down more closely onto each firms’ specific market positions and motiva- tions: that is, onto the things that firms care most directly about – their own market positions and their own profits. That focus fits also the rising interest in the 1980s about dominant firms (as in Hay and Vickers, 1987). The market-share focus contrasted with the vague oligopoly-based hypotheses about joint-maximizing, entry-limited prices, and industry-wide price-cost ratios. But even when the structure-profit patterns were clear and strong, they could be re-interpreted in an upbeat way which took market power out of the picture. Chicago School members argued that all the structural findings – both the concen- tration-to-price and the market-share-to-profit-rate correlations – might merely re- flect superior performance. Or rather, they said, good performance really was the real cause, in nearly all cases – or actually in all of them. Hence the

Journal

Review of Industrial Organization – Springer Journals

Published: Oct 16, 2004

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