Concentration and Mobility: Alternative Measures of Industry Structure

Abstract

FOR the past 40 years, economists have relied upon concentration, however measured, as a primary description of industry structure. From time to time, complaints have been raised citing the technical shortcomings of this measure. Most of these suggestions have referred to the appropriateness of either (i) the variables used, or (2) the method of measurement selected. Throughout this period of time however, little if anything was done to develop other measures of structure which lend themselves to quantitative analysis. There are some exceptions to this, of course. Professor Bain attempted to appraise the impact of product differentiation upon industry performance.' More recently, the work of Mann, Telser and others has offered some hope that this approach may be more fruitful.2 A recent paper by Boyle and McKnew attempted to relate the level of product differentiation to both the magnitude and frequency of price changes in highly concentrated industries.3 One result of that study was to cast serious doubt upon the implicit, and sometimes explicit, assumption that product differentiation activities (most usually advertising) and price competition are necessarily substitutes for one another, i.e., that degree of product differentiation and price flexibility are inversely correlated. Interesting as they are, these studies do not assist materially in the analysis of the physical characteristics of a market. A major exception to this has come in the form of a limited number of studies which have attempted to provide an alternative analytical approach to the measurement of industry structure. These studies have attempted to describe, and to provide an analysis of, the significance of changes in the relative rankings of firms within some market through time. As Kaplan pointed out: