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In this article authors examines the relationship between industrial concentration and corporate profit. They try to find out whether the critical level of concentration can be defined, and whether increased concentration above the critical level significantly increases profitability. Economic theory provides some guidelines in selecting a measure of profitability but it is unable to indicate, unambiguously, the best definition. Some economists have argued that the rate of return on some measure of invested capital is theoretically the most appropriate measure of allocative efficiency. Authors remark that if advertising is associated with concentration the relationship between the price-cost margin and concentration could be spurious. Another drawback of the price-cost margins is the fact that they are available for only selected years and therefore it is not possible to average these margins over a sufficiently long period of time to test adequately the long-run theoretical relationship.

In this article, the author comments on the article "Concentration, Barriers, and Rates of Return: A Note," by Stephen A. Rhoades, which was published in the November 1970 issue of "Journal of Industrial Economics." The author says, Stephen A. Rhoades claims to have found that barriers to entry have no significant influence on profitability independent of concentration. Rhoades goes so far as to state that the relationship between the rate of return and concentration in high barrier industries is not significantly different from rates of return in low barrier industries. The author shows that Rhoades' apparent finding is based entirely on an outright statistical mistake regarding the illegitimate pooling of observations from the high and substantial barrier classes. Rhoades fails to investigate whether it is or is not statistically justifiable to combine the high and substantial barrier classes. Thus, pooling of the high and substantial barrier classes is unacceptable. The chances that the observations in these two groups are drawn from a common population is less than 5 in 100.

In the November 1970 issue of "Journal of Industrial Economics," the author published a note which related to an earlier article by researcher H. Michael Mann. The major conclusions reached by Mann were that barriers to entry exert an important influence on industry profits independent of the level of seller concentration and the concentration-profitability relationship is better described, using a dummy variable, as subject to a distinct break or discontinuity rather than by a simple linear function. The author's note found that neither of these conclusions was warranted. Mann claimed that the author's finding of no significant differences between profits in high and low barrier industries was due to an outright statistical mistake regarding the illegitimate pooling of observations from the high and substantial barrier. The author argues that a footnote of his note very clearly indicates that he was not only aware of the problem of pooling observations from the high and substantial barriers classes but he also combined categories substantial and moderate for testing purposes.