Asymmetry, Entropy, and Policy: Comment

• Author: Glenworth Ramsay
• DOI: 10.1177/0003603X7502000404
• Published date: 01 December 1975
• Date: 01 December 1975
• Subject Matter: Article

ASYMMETRY.

ENTROPY.

AND

POLICY: COMMENT

by

GLEN

WORTH

RAMSAY·

INTRODUCTION

Measuring

market

structure

with an

entropy

index

has

recently gained

popularity

as evidenced by its appearance

in The

Antitrust

Bulletin

during

1974,

and

its

European

ap-

plication in all

EEC

studies. However,

care

has not been

taken in distinguishing between the use of the entropy index

for

research

and

its use as a public policy measure. The use

of

any

index in

antitrust

policy

must

fulfill two

criteria

that

are

not

necessary

for

research.

First,

the index

must

be clearly understood by those

that

use

it

for

policy judgments. The

virtue

of the concentration

ratio

is

its

simplicity,

and

the vice of

entropy

is

its

com-

plexity.

Hexter

and

Snow!

apparently

recognize this vice

and

offer relative

entropy

as a more readily understood con-

cept-"economists

are

used to dealing with numbers between

zero

and

one." Although one can

agree

that

relative en-

tropy

is less likely to be non-understood, it is more likely to

be

misunderstood-that

is,

misinterpreted

or used errone-

ously.

The second policy

criteria

of an index requires the links

between the elements of

market

structure

measured by the

index

and

the social performance of the

industry

to have

both theoretical

and

empirical evidence

supporting

them.

There

is no such

support

for

Hexter

and

Snow's relative

entropy

index.

•Assistant Professor of Economics, University of Rhode Island.

AUTHOR'S

NOTE:

Iwould like to

thank

Joel Dirlam for helpful

comments on an earlier version of this paper.

1

J.

L.

Hexter

and

John

W. Snow, "Merger, Asymmetry

and

Anti-

trust,"

The

Antitrust

Bulletin (Summer, 1974), pp. 401-419.

759