The Aggregate Relation Between Profits and Concentration is Consistent with Cournot Behavior

Résumé du livre

An important and controversial stylized fact in industrial organization is the positive correlation between industry profit and concentration. There are many interpretations of this finding. One view is based on the classic theories of Chamberlin and Stigler, which imply that concentrated industries facilitate collusion, leading to supernormal profits. But independent, profit maximizing behavior in the Cournot model can also generate the positive correlation. A second fact--that intra-industry profit rates are correlated with market share--is the basis for an alternative interpretation of the first. In this paper we present an equilibrium model of oligopoly which generates these two implications and nests the classic behavioral assumptions of Bertrand, Cournot and Chamberlin. Among the alternative models we find that the Cournot version implies regression coefficients for the profits-concentration relation that are very close to the estimated coefficients in the empirical literature. Thus, what many regard as the benchmark model of oligopoly is consistent with one of the principal findings of the empirical literature.