By the 1950s the structure-conduct-performance (S-C-P) model--with the central role of seller concentration as a determinant of industry conduct and performance--was the mainstay of IO thinking.
Seller concentration, as measured by the Herfindahl-Hirschman Index (HHI), (36) occupies the center stage (as it does in the S-C-P model) for at least two reasons: First, seller concentration is surely the most readily measured structural attribute; and second, the immediate effect of any horizontal merger is to increase seller concentration.
Seller concentration determines political power of an industry's special interest groups by influencing their ability to mobilize members and by lowering incentives to free ride.
NTM coverage is higher for industries that enjoy both scale economies and high seller concentration. (6) Protection is more valuable to industries that exhibit these characteristics.
Analogously, a large literature finds that, across many industries, seller concentration
is positively correlated with prices and seller profits.
Antitrust policy is being challenged by skeptics who are mounting attacks on the need for antitrust under the guise of globalization or the requirements of the "new economy." Also, the theoretical and empirical literature on competition has moved beyond seller concentration
, price-cost margins, and other ideas central to current enforcement.
The industry-specific characteristics which have traditionally been hypothesized to influence price-cost margins [Scherer and Ross, 1990] include the extent of seller concentration
, measured as the four-firm concentration ratio, and the small business presence, measured as the number of firms in the industry with between 10 and 50 employees [Prince and Thurik, 1993].
In terms of the conjectural variation elasticity, one can reasonably expect seller concentration
to be positively correlated with [Theta] as well as AELS.
The standard method of this "paradigm" is to test a central hypothesis: Did that increase in seller concentration
tend to raise industry-wide profits by facilitating collusion?
The reasons for this include (1) the increasing pace of merger activity, as indicated by Walt Disney Co.'s proposed acquisition of Capital Cities/ABC, Inc., and TimeWarner Inc.'s proposed acquisition of Turner Broadcasting System, Inc.; and (2) new developments in the study of the relationship between seller concentration
and market price, principally reflected in Leonard Weiss', Concentration and Price.(2)
Second, a high level of market concentration is a necessary (but usually not sufficient) condition for the exercise of market power, and high levels of buying-side market concentration are seen far less frequently than high levels of seller concentration
.(25) It is misleading to say, as Blair and Harrison do, that "for every seller there is a buyer"(26) in fact, for every seller there are usually many buyers.
Chapter 2 ("Price Levels and Seller Concentration
: The Case of Portland Cement," Roland H.