Concentration and Price-Cost Margins in Manufacturing Industries

BOTH economic theory and industrial experience suggest that the structural features of an industry strongly influence the competitive behavior of its member firms and the performance outcomesprices, profits, output, etc.-in its markets. Only under narrowly specified and rather extreme theoretical conditions, however, has it been possible to deduce market performance entirely from structural factors. Beyond the limiting cases of complete monopoly and perfect competition, theory is at best a guide to the identification of potentially significant variables and to the development of hypotheses. In an early article, Bain pointed out the need for 'detailed empirical studies which would formulate specific hypotheses on the relations of market structure to market performance and would then test such hypotheses with available evidence'.2 Without underestimating the importance of several recent attempts to increase the relevance of economic theory to the analysis of these relationships, 3 it is generally agreed that new and more precise generalizations as to the relation of industry structure to conduct and performance will depend heavily upon continued empirical research. Such studies would produce results not only of academic interest but also of fundamental importance for the development of relevant and effective public policies for the promotion of market competition.4 The results presented here are based upon an empirical study of certain structural and performance characteristics of an important segment of American industry, food manufacturing. Broadly speaking, this study confirms the importance of structural variables in an