Trade-adjusted concentration ratios

• Date: 01 September 1984
• Published date: 01 September 1984
• DOI: 10.1177/0003603X8402900304
• Subject Matter: Article

The Antitrust Bulletin/Fall 1984

Trade-adjusted concentration ratios

BY

JOHN

LUNN*

523

The traditional approach to analyzing markets employed by

industrial organization economists is the "structure-conduct-

performance" framework.' Empirical studies within this frame-

work generally use seller concentration ratios as an independent

variable to measure one dimension

of

industry structure. The

theoretical justification for using seller concentration is

that

the

ratios measure the degree to which a few firms account for most

of

the sales in an industry, and the more concentrated the

industry is, the more likely the firms can collude.' By colluding,

the firms can restrict output, raise price, and increase joint

profits. Thus, a positive relationship between concentration and

profits is expected, and is usually found.

•Assistant Professor, Louisiana State University, Baton Rouge,

Louisiana.

AUTHOR'S

NOTE: Financial support was provided by a Miami University

Summer Research Grant.

IThis framework can be seen in any industrial organization text,

e.g., F. M. Scherer, Industrial Market Structure and Economic Perform-

ance (Chicago: Rand McNally, 1980); and D. F. Greer, Industrial

Organization and Public Policy (New York: Macmillan Publishing

Co.,

1980).

2G. Stigler,

"A

Theory

of

Oligopoly," Journal

of

Political

Economy 72 (Feb. 1964): 44-61.

©1984 by Federal Legal Publications, Inc.