The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior

The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior An important and controversial stylized fact inindustrial organization is the positive correlationbetween industry profit and concentration. Oneinterpretation of this finding is based on thetheories of Chamberlin and Stigler, which imply thatconcentrated industries facilitate collusion. Butnon-cooperative profit maximizing behavior can alsogenerate a positive correlation. This paperpresents an equilibrium model of oligopoly whichnests the behavioral assumptions of Bertrand,Cournot, and Chamberlin. Simulations of the modelunder the Cournot assumption yield regressioncoefficients for the profits-concentration relationthat are very close to the estimated coefficients inthe literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007817706987
Publisher site
See Article on Publisher Site

Abstract

An important and controversial stylized fact inindustrial organization is the positive correlationbetween industry profit and concentration. Oneinterpretation of this finding is based on thetheories of Chamberlin and Stigler, which imply thatconcentrated industries facilitate collusion. Butnon-cooperative profit maximizing behavior can alsogenerate a positive correlation. This paperpresents an equilibrium model of oligopoly whichnests the behavioral assumptions of Bertrand,Cournot, and Chamberlin. Simulations of the modelunder the Cournot assumption yield regressioncoefficients for the profits-concentration relationthat are very close to the estimated coefficients inthe literature.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 16, 2004

References

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