Specification and Testing the Profit-Concentration Relationship in Australian Manufacturing

Specification and Testing the Profit-Concentration Relationship in Australian Manufacturing Research in the mainstream of industrial organization has tested the relationship between profit rates (an index of performance) and concentration (an index of structure) including other variables (e.g., capital intensity, advertising intensity, growth, measures for barriers to entry, import and export intensity). Specification of this relationship is often largely ad hoc and its testing is subject to a number of statistical criticisms. Major criticisms that require attention are: i) omission of the relevant explanatory variables, ii) simultaneous causality among variables, and iii) measurement error in the variables. This paper derives a profit-concentration relationship from a well known oligopoly model. Empirical analysis is carried out against a sample of Australian manufacturing industries for 1984–85. The resulting estimates suggest the importance of dealing with each of the specification and testing issues in explaining the profit-concentration relationship. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Specification and Testing the Profit-Concentration Relationship in Australian Manufacturing

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007710622023
Publisher site
See Article on Publisher Site

Abstract

Research in the mainstream of industrial organization has tested the relationship between profit rates (an index of performance) and concentration (an index of structure) including other variables (e.g., capital intensity, advertising intensity, growth, measures for barriers to entry, import and export intensity). Specification of this relationship is often largely ad hoc and its testing is subject to a number of statistical criticisms. Major criticisms that require attention are: i) omission of the relevant explanatory variables, ii) simultaneous causality among variables, and iii) measurement error in the variables. This paper derives a profit-concentration relationship from a well known oligopoly model. Empirical analysis is carried out against a sample of Australian manufacturing industries for 1984–85. The resulting estimates suggest the importance of dealing with each of the specification and testing issues in explaining the profit-concentration relationship.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 29, 2004

References

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