The Determinants of Market Structure: Design for Research

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Abstract

Research in the field of industrial organization has made great progress during the past twenty years with the statistical testing of hypotheses about the effects of the structures of markets on their social performance. Concentrating principally on allocative efficiency (but also on some aspects of technical efficiency and progressiveness), researchers have confirmed a number of elements of market structure predicted by the theory of markets as significant determinants of performance. Allocative efficiency, measured by the price-cost margin or rate of return on investment, has been related to seller concentration, the various components of barriers to entry, the rate of growth of demand, the incidence of fixed costs, the extent of import competition, the extent of firms’ diversification, the structure of distribution channels, the subgroup organization of competing sellers, etc. Although most of this research has dealt with the United States economy, at least some of these structure-performance hypotheses have been confirmed for several other industrial countries as well, indeed, in one test the structure of these relations proved to be identical between two countries, the United Kingdom and United States (Khalilzadeh-Shirazi, 1973, chapter 3). The conventional structure-performance relations have gained strong statistical confirmation even in economies such as France and Japan where one might expect intervening private institutions and public policies to overwhelm them.

This paper draws on continuing research carried out jointly with Michael E. Porter and contains various ideas that I owe to him. I am also grateful to William James Adams for many conversations about the potential value of international research designs.