Review of Industrial Organization 16: 247–250, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Market Structure and Proﬁts, Market Power and
Cournot: A Comment
WILLIAM G. SHEPHERD
Department of Economics, University of Massachusetts, Amherst, MA 01003, U.S.A.
The paper by Gisser and Sauer returns to the long-running cardinal issue in the
ﬁeld: whether market power really does raise price and proﬁts, in patterns that
can be tested and shown empirically (see Shepherd, 1997). Related to that is:
whether any such observed relationship may really be caused not by market power,
but instead by economies of scale or other “good-performance” actions of domi-
nant ﬁrms. If good performance rather than market power were at work, then the
Chicago-School “efﬁcient-structure” view would be relevant, with its attempt to
reverse the mainstream assumption that causation runs mainly from structure to
performance. By ﬁnding a Cournot meaning to the pattern, Gisser and Sauer seem
to ﬁt the benign Chicago School thinking.
I. Setting the Context of This Debate
Econometric research in this area began in the 1930s, and by the 1960s it had shown
1. Industry-wide Concentration and Prices: industry-wide ﬁgures for 4-ﬁrm con-
centration ratios and price–cost margins emerged with only a faint correlation (a
coefﬁcient of about 0.1, with a partial r-squared of about 10 percent) (see Bain,
1957; Shepherd, 1970). Though they were weak, the correlations were often statis-
Unhappy with data ﬂaws and the seemingly faint patterns, a number of re-
searchers turned the focus during 1965–80 to:
2. Individual-Company Market Shares and Proﬁt Rates: using more speciﬁc ﬁrm-
based data on companies’ own market shares, researchers found them to be closely
This brief Comment is a lone departure from my careful avoidance of writing for the Review,
other than providing occasional editorial introductions. I sometimes invite reviewers with substantial
referee reports to develop them into Comments, if they wish to bring out speciﬁc points. That is what
I have done here, as a past participant in the literature on this subject.