Abstract
In the thirty years since Joe Bain’s seminal study (1951), many economists have attempted to determine whether or not there exists a critical level of market concentration at which a discontinuity occurs in the relation between industry concentration and profitability. In this chapter we develop and test a more general model, based on organization costs, that posits the existence of two critical levels of market concentration: one at which an existing cooperative equilibrium will break down, and one at which a cooperative equilibrium will be attainable for the first time in a previously competitive industry. We show that the standard critical-level-of-concentration model can be regarded as a special case of our more general model, and also that there is a statistically significant difference in fit, in favor of the more general model.
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Bradburd, R.M., Over, A.M. (1983). The Notion of a Critical Region of Concentration: Theory and Evidence. In: Craven, J.V. (eds) Industrial Organization, Antitrust, and Public Policy. Middlebury Conference Series on Economic Issues. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-1874-5_6
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DOI: https://doi.org/10.1007/978-94-017-1874-5_6
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