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A NUMBER of studies have examined the relationship between market power, measured by seller concentration' or by the existence of entry barriers,2 and profitability, usually measured by the ratio of net income to the book value of stockholders' equity. In general, this literature concludes that greater market power generates higher rates of profitability, and the existence of this higher profitability over time is condemned because it implies higher prices, restricted output and consequently allocative inefficiency. The degree of usage of financial leverage by individual firms will influence the results of studies such as those noted above. Since the usual measure of profitability in such studies was the ratio of net income to the book value of stockholders' equity, two firms could have similar assets, output, and prices yet have differing profitability measures only because of the amount of financial leverage utilized. F. M. Scherer clearly stated this possibility in a recently published text.

(1974). Market Power and Inflation: A Short-Run Target Return Model. Journal of Economic Issues: Vol. 8, No. 2, pp. 453-478.

It is frequently assumed that monopolistic or monopsonistic elements in the market network through which a basic crop moves from farm to final consumer or point of export exert a substantial influence on economic performance in a nation's agricultural sector. Yet studies of the putative effects of the market power of middlemen may suffer from failure to examine the impacts of monopoly or monopsony when such imperfections exist simultaneously at more than one level of the distributive network. In the case of Thailand, and that nation's rice trade, analyses of market structure and economic power at various stages of distribution are important not only because of the basic significance of rice and rice markets, but also because opinions as to how the rice markets function have been inextricably bound up in public issues involving taxation of the rice trade and policies toward Thailand's Chinese minority.1 Yet quite a bit of the discussion of the Thai rice trade has drawn explicitly or implicitly

The multinational corporation (MC) is thought by some to be an instrument of neo-colonialism because its activities as a market power affect the balance of payments of the host countries and pose a threat to sovereignty. Yet its contributions in the spheres of technology and managerial expertise make it very important for development. In this article Mr Venu suggests that a confrontation between the multinational corporation and the nation state could produce a “dgeocentric” outward-looking institution, and would constitute a victory of pragmatism over dogma.

John Blair's article represents a major extension of his earlier American Economic Review article, "Economic Concentration and Depression Price Rigidity." Essentially, he argues that "perverse price flexibility" (upward movement of prices during recessions) has become more and more prevalent since the end of World War II. To test this basic proposition Blair uses the new BLS "Industry-Sector" price indexes (prices organized on the SIC basis), covering 344 SIC five-digit classes (about one-third of the number of all product classes) and representing more than 50 percent of their total value. The test period used is the 1970 recession (December 1969-December 1970) and the 1971 "reflation" (December 1970-December 1971). His conclusions are essentially the same as in his 1955 study, namely, that prices in concentrated oligopolistic industries tend to rise both during periods of declining and expanding demand. Finally, he offers a variant of full-cost pricing theory, that is, a "short-run target-return model" to explain this kind of behavior. Considering that this is the first attempt of which I am aware to use the new BLS SIC "Industry-Sector" price indexes, itself a sample of five-digit product groups, and since only one recession and recovery period is involved in the analysis, Blair's analysis is likely to raise

There has been much empirical investigation into the behaviour of the businessman in his role as "economic man," "organization man," and "decision-maker." However, little systematic empirical research has been done on the values and behaviour of the businessman as a "political man," despite the fact that political behaviour is a major subsystem of total business behaviour. Even though all businessmen in a market economy may share many political interests and values, their political sentiments and behaviour are probably heterogeneous.' With this premise the following hypothesis can be put forward: when businessmen are classified into groups according to objective criteria (such as firm size, market power, or type of industry) diverse political interests and attitudes are represented and can be identified. It has frequently been postulated that political sentiments and attitudes are a function of the size of the firm. Robert Dahl states: "It is a plausible and commonplace hypothesis that in some respects the political behavior of businessmen is a function of the size of the firm. The social, psychological, and economic environment of the small businessman is often thought to be more conducive to extremism and intolerance than the bureaucratized and technical setting of the big business

There exists a wide and continuing informational gap between the Food Retailing Industry and the academic community. The amount of information in regard to market conduct in this area is isolated and fragmented. Current measurements of concentration and market power include no subjective values or operational conduct variables. The value judgments and conduct of the participants in the market place are not considered. This article presents a theoretical discussion in developing a measurement which could help in rectifying the above shortcomings. The development of a competitive rating index would pressure agricultural economists to rely less readily on traditional measures of market power in drawing conclusions and to examine with greater care the conventional relationship which is alleged to exist between market structure conduct and performance. Summary The inclusion of the above indices into one competitive rating index gives us a tool which would allow economists to study the relative position of each firm hi a national, regional or local environment. The type of competition can be classified. The stages that various markets pass through as markets develop in their use of price and non-price competition can be reviewed. Weighted indices could also be evaluated, i.e., if an index of advertising and promotion were included, it would be possible to weight this index by market share to gauge the possible impact on competitive intensity. The use of the many sub-indices would facilitate decisions by management and management consultants, in regard to rectifying weaknesses which exist in the competitive tactics of the individual firm. It would thus increase the ability of the firm to initiate countermoves and thus introduce a stronger competitive tone into the market place [5, pp. 471–476]. A careful and continuing analysis of the sub-indices by policy makers would enable them to initiate control procedures without the “hue and cry” of a Royal Commission.

Area, yield, and output response functions for rice and corn were estimated for the Philippines as a whole and for nine major regions by means of both simple regressions and distributed lag models. The short‐run supply elasticities calculated from the area response functions typically fall in the 0.10–0.30 range, although estimates as high as 0.60 were obtained. Market‐surplus elasticities ranged from 0.20 to above 1.00. In general (a) the supply and market‐surplus elasticities for rice were higher than for corn and (b) the elasticities for both rice and corn were highest in the commercial areas characterized by proximity to urban centers and/or relatively high levels of irrigation development. The price‐elasticity estimates for the Philippines are comparable with estimates obtained for the same crops, and for other subsistence crops, in other Asian countries. Significant price parameters were not, except in one case, obtained for the yield response functions. Thus, although prices of rice and corn in the Philippines have apparently been fairly effective in allocating resources, there is little evidence to indicate that price changes are an effective device for influencing aggregate agricultural output. This implies a much less optimistic outlook for the role of price as a development tool, at present levels of technology, than if price changes induced yield as well as area change. Price changes at one level of the marketing system are typically reflected, with little change in the marketing margin, at other levels. Any market power exercised by wholesalers and retailers is typically of only local significance and/or of short duration.

International diffusion of inflationary processes has been analyzed recently by Mundell (1971, chap. 15). His main conclusion is that the process will perpetuate a surplus balance of trade on the part of those countries that import inflation from abroad, which he likens to payments by those countries of "seigniorage" to the key currency country. Mundell has derived his results through an ingenious application of the technique of long-run steady equilibrium. While I remain persuaded by Mundell's main conclusion, some aspects of the process seem to be worthy of further explorations, which I propose to study in what follows. In particular, I am concerned with the short-run adjustment of the economy to a steady rise in the price of imported goods, on the one hand, and the effect of imported inflation on the terms of trade, on the other. Unlike Mundell, I introduce explicitly two kinds of goods, domestic products and imports, into the model and assume that the country in question has no market power for imports but exerts some influence on the world price of exports. In other words, the country is assumed to be a price taker for imports but to have monopoly power in exports, whose price elasticity is less than infinite.' In the process of adjustment to a rise in the imports price, which is exogenous by assumption, the country will generate a surplus in its trade balance. The country faces the demand for its exports that is less than infinite, and a surplus in the trade balance

THE relationship of advertising to corporate profits has become an increasingly important topic to economists and others interested in public policy toward business. For example, the I969 report by the President's Cabinet Committee on Price Stability states that market concentration has risen 'sharply and presistently' in consumer goods industries, and that this 'reflects the advantages of large scale advertising and of product differentiation held by large enterprises'. Furthermore, the report continues: 'This increasing concentration suggests that there has been a growth in the discretionary pricing power of sellers in these industries' [3, p. 82]. Donald F. Turner, while Assistant Attorney General for Antitrust, indicated that he deemed it appropriate to impose limits on advertising and promotional expenditures by firms that have attained 'undue market power' [29, p. io]. Recently, the Federal Trade Commission has accused breakfast cereal manufacturers of illegal monopolization [2i]. A major basis for the charge is the FTC belief that high advertising expenditures by the companies create effective entry barriers.1 The belief that advertising creates effective entry barriers is based primarily upon a rather large number of statistical studies that have examined the correlation between industry advertising expenditures and concentration ratios [i, 8, 9, II, 1I2, I5, I6, I7, I8, 23, 26, 28] and between industry profit rates and industry advertising expenditures [4, 5, 6, 19, 24, 32]. Recently, several studies have been published that correlate firm profit rates with weighted average advertising expenditures of the industries in which the firms participate [Io, I4]. We would summarize the results of these studies as follows :2 (i) the existence of a statistically significant positive correlation between advertising and concentration remains an open question, (2) the correlation (after accounting for the effects of other market structure vari

[1] KNAPP, JOSEPH G., "The Scope of Farmer Cooperatives-Present and Future," J. Farm Econ. 44:476-488, May 1962. [2] DELOACH, D. B., "Growth of Farmer Cooperatives-Obstacles and Opportunities," J. Farm Econ. 44:489-500, May 1962. :[3] COASE, R. H., "The Nature of the Firm," in Readings in Price Theory, The American Economic Association, Homewood, Illinois, Richard D. Irwin, Inc., 1952, pp. 331-351. [4] KNIGHT, FRANK H., Risk, Uncertainty and Profit, New York, Augustus M. Kelly, 1964. [5] U.S. Bureau of the Census, U.S. Census of Manufactures: 1958, Vol. 1, Summary Statistics, U.S. Government Printing Office, Washington, D.C., 1961. Also see corresponding volumes for 1947 and 1954. [6] GARDNER, KELSEY B., AND ANNE L. B. GESSNER, Trends in Growth of Farmer Cooperatives, 1950-1960, Farmer Cooperative Service, U.S. Dept. of Agriculture, FCS General Report 110, March 1963. [7] Farmer Cooperative Service, Farmer Cooperatives in the United States, U.S. Department of Agriculture, FCS Bul. 1 (rev.), 1965, p. 262. [8] ERDMAN, HENRY E., AND GRACE LARSEN, Revolving Finance in Agricultural Cooperatives, Madison, Wisconsin, Mimir Publishers, Inc., 1965, pp. 3-19. [9] HULBERT, L. S., Legal Phases of Farmer Cooperatives, Farmer Cooperative Service Bul. 10, revised and extended by R. J. Mischler, USDA, Jan. 1958. [10] YOUDE, JAMES, AND PETER HELMBERGER, Membership Policies and Market Power of Farmer Cooperatives in the United States, Wisconsin Agr. Exp. Sta. Bul. 267 (forthcoming). [11] Institute of Food and Agricultural Sciences, Synthetics and Substitutes for Agricultural Commodities, Pub. 1, University of Florida, May 1966. [12] COCHRANE, WILLARD W., "Changing Structure of the American Economy," J. Farm Econ., 41:401-413. May 1959. [13] BREIMYER, HAROLD F., Individual Freedom and the Economic Organization of Agriculture, Urbana, University of Illinois Press, 1965, pp. 259-274. [14] National Commission on Food Marketing, Food from Farmer to Consumer, Washington, D.C., June 1966.

In recent merger cases under section 7 of the Clayton Act, the courts have taken the position that improvements in efficiency produced by the merger cannot be given consideration as a defense if the merger also produced anticompetitive effects. In fact, the existence of economies has usually been given added weight in the reasoning for disallowing merger. For example, the presence of economies in advertising was used in the reasoning which prohibited the merger of Procter and Gamble with Clorox.' While the courts have used the possibilities of economies as reasons for disallowing mergers, the Justice Department has accepted the notion that some mergers can be justified by cost savings even though there may be anticompetitive effects as well. According to Justice Department guidelines on horizontal mergers, different standards are used for highly concentrated markets where the four largest firms have 75 percent or more of industry output than for less highly concentrated markets where the four largest firms have less than 75 percent.2 The difference suggests implicit welfare tradeoffs in effect in these guidelines between anticompetitive effects and the possible benefits of economies for different market structures, but no clue is provided as to the criteria used in developing these tradeoffs. The view that economies can be used to offset anticompetitive effects also was expressed by Justice Harlan in his concurring opinion in the Clorox case. He writes, "Where the case against the merger rests on the probability of increased market power the merging companies may attempt to prove that there are countervailing economies reasonably probable which should be weighed against the adverse effects."3 But again, while economies have been suggested for consideration in merger cases, there are no criteria given for judging at what point the anticompetitive effects are outweighed by the cost savings. In the following sections, a model will be developed which will attempt to determine the relevant tradeoff conditions. An appraisal of firm strategy in the tradeoff situation is also made. This model develops further an initial formulation constructed by 0. E. Williamson who concluded, "Since a relatively large percentage increase in price is usually required to offset the benefits from a 5 to 10 percent reduction in average costs, the existence of economies of this magnitude is sufficiently important to give the antitrust authorities pause before disallowing such a merger."4 However, Williamson's conclusion is unwarranted * This paper was written at the Center for Research in Government Policy and Business at the University of Rochester. The author received helpful comments from Walter Oi and James Ferguson.

THIS paper examines the effect of market share on the rate of return of selected firms operating in different market environments. It will be shown that the effect of share on profiltability depends on the degree of concentration and rate of growth in the industries in which the firm competes, and on the absolute size of the firm. One of the most important propositions of micro-economic theory is that under competitive conditions, rates of return tend toward equality. A casual look at the data will reveal that rates of return are not equal and that differences in rates of return often persist over time. Many studies have utilized industry concentration as a measure of market power and have analyzed the effect of concentration on industry profitability (a sizeable list may be found in Weiss (1971)). Three recent studies have looked at the effect of concentration on profitability using the firm as the unit of analysis (Federal Trade Commission (FTC), Hall and Weiss (1967), and Shepherd (1972)). Although share data is not generally available for most firms, the FTC study does examine the effect of "relative market share" (market share divided by the big four firm concentration ratio) on profitability in food manufacturing firms, while the Shepherd paper examines the effect of market share for a sample of large, nondiversified firms. The more recent of the above studies emphasize additive multiple regression models. While these models attempt to control for the effects of some dimensions of market structure when focusing on the effect of a particular structure variable, they do not capture the interaction effects of structure variables on profitability. Two independent variables are said to interact if the effect of one independent variable on the dependent variable depends on the level of the other independent variable. Interaction effects may be analyzed in the following three ways (1) specifying an interaction model, (2) including interaction variables in an additive model, or (3) by estimating the parameters of an additive model for subgroups of the total sample. A version of the third method is employed in this study and will be discussed in section I. To illustrate this subgrouping method, suppose we divide our sample into two subsamples (A) firms in highly concentrated industries and (B) firms in lowly concentrated industries. As will be explained below, we expect that the slope coefficient from a regression of profitability on share in the high concentration subgroup will be much higher and more significant than the slope coefficient from the low concentration subsample. The primary goal of this paper is to develop and test a theory of the effect of firm share on profitability under various competitive situations. We have tried to integrate, formulate, and extend some elements of oligopoly theory and to test the resulting hypotheses. The hypothesis and finding that share affects rate of return is greatly strengthened by the more complex interaction hypotheses and findings.1 In carrying out this major goal we also examine the effects of both firm and industry growth on profits, develop new evidence on leverage as a measure of risk, comment on the controversy over the correct measure of profitability, and introduce the concept of market share as a so;urce of product differentiation. The paper contains four major sections. The first section develops the theoretical relationship between share and profitability. This discussion focuses on the interaction effects on profitability of share and the market environReceived for publication September 30, 1971. Revision accepted for publication June 21, 1972. * I am indebted to Ronald G. Ehrenberg, Kenneth Gordon, Marshall C. Howard, James K. Kindahl, Thomas Muench, and George Treyz and two referees for comments and suggestions on an earlier draft of this paper and to Patricia M. Anderson for programming services and comments. ' The interaction findings, especially the growth interaction, support the case for interpreting the data in this cross-section study as representing the effect of share on profitability. An examination of the dynamic process by which firms alter their market share positions would require time-series data. (See Gale, 1972.)

Within the general topic of this session, my remarks will be more specifically directed to the battle against inflation and an appraisal thereof. Inflation must be a dirtier word than I had thought, for it's nowhere to be found in our AEA program this year (though perhaps our sister organizations have recognized its existence in their sessions and papers). Yet, in economies that orbit in the "narrow band" around full employment, the toughest economic policy nut to crack, bar none, is inflation. No free economy has yet cracked it. And ever since escalation in Vietnam so rudely interrupted our balanced advance toward full employment, the inflationary fat has been in the fire in the U.S. economy too. Neither tight money, nor restrictive fiscal policy, nor both finally working in tandem since late 1968, has thus far been able to quench the flames. Even when we get past the epidemic phase of inflation-as I believe we will in the next year or so-inflation will still be endemic in our economy. Let's face it: We now live in an inflationprone economy. Given a bipartisan commitment to high-employment, high-growth economics; given unrelenting pressures for capital spending on private and public infrastructure, on housing, on pollution control and the like; and given the stubborn centers of market power in both business and labor, it's not hard to understand why the job of reconciling full employment and reasonable price stability-or should I say, tolerable rates of inflation?-will still confront us even when Vietnam is behind us. It is to this limitless subject that I devote my limited time today. In doing so, I'll have to lay aside the rather remote but not unthinkable possibility that U.S. political economy may force us to choose some day between 4 to 5 percent inflation (and the inequities and inefficiencies that go with it) and 5 percent plus unemployment (and the individual pain and social unrest that go with it). Instead, I'll assume that the American people and those who hold the policy reins are not prepared to put up with more than 2.5 percent to 3 percent inflation a year and address myself to the issues that thus confront us in an economy still afflicted with double that rate of inflation

Many models of trade and development are based on the assumption that an underdeveloped country's exports are determined exogenouslyfor example, in accordance with the growth of world demand-or in any case independently of the country's own policy actions.' This assumption may be useful for many analytical and policy purposes, but it is important to point out that in some cases, other models of export determination may be relevant. For instance, a study of Brazil's export stagnation during the postwar period revealed that a major cause lay in government policy discriminating against exports of products other than coffee.2 This was done through overvaluation of the export exchange rate for such products, and when this was not enough to deter exportation, through the imposition of export quotas and outright prohibitions. As a result of these policies, the proportion of primary production that was exported rather than consumed domestically dropped sharply. The quantum decline in exports of these products accounted for the failure of aggregate Brazilian exports to increase much during this period. This is not the familiar case in which an underdeveloped country attempts to restrict supply of a commodity in which it has a degree of oligopolistic power in the world market, and indeed the policy applied only to products in which Brazil clearly had no market power. Rather, government discrimination against exports stemmed from the policy makers' special "exportable surplus" attitude to trade.3 Following this approach, a country exports only the "surplus" which is "left over" after the domestic market has been "adequately" supplied. Domestic demand takes priority, however, and must be supplied even if internal prices are lower than world market prices. Such an "exportable surplus" approach leading to discrimination against exports has apparently not been limited to Brazil.4 A similar mentality seems to have influenced export policy in other less developed countries during the postwar period, for example, in Argentina, Colombia, and India, and for particular commodities, such as rice, in Egypt and

Market power is defined in terms of a firm's ability to affect directly other participants in the market or such market variables as prices and promotion practices. The article distinguishes between short-run and long-run power and between offensive and defensive power. More than a dozen sources of power are identified in the food industry. Some of the things commonly regarded as manifestations of market power are unreliable indicators of it. In particular, higher-than-average profits and market power do not necessarily go together.

B USINESS conglomeration is not new. There have long been examples of multimarket and multiproduct business enterprises, the distinguishing features of the conglomerate firm. What is new, and what makes business conglomeration a timely public policy issue, is the profusion and enormous size of many contemporary conglomerate enterprises. Today most huge industrial enterprises straddle numerous industries, often doing only a small share of their total business in any one industry. Hence, conglomerate enterprises are no longer the exception, but the rule, in many contemporary industrial markets. This development is of no lesser significance than was the replacement of many highly fragmented, small business industries by oligopolistic, big business enterprises beginning with the great merger movement around 1900. Economists responded to the new industrial structure emerging from that era by developing the theory of monopolistic or imperfect competition, and, ultimately, the body of price theory now encompassed by industrial organization theory. The multimarket character of the modern conglomerate enterprise raises a number of important questions regarding the relevance of contemporary industrial organization theory and empirical research. The conglomerate enterprise may enjoy economic power that differs from the traditional market-oriented concept of market power. According to traditional theory, market power is derived from the characteristics of a particular market, especially the level of seller concentration, the extent of product differentiation, and the condition of entry. In this theory, market power is shared-e.g., in the form of higher prices and profits-by the sellers in the market at the expense of buyers. Conglomerate-derived power, on the other hand, differs from traditional market power in important ways. It depends upon intrafirm structure-particularly upon a dissimilarity of intrafirm structure among the companies that may be rivals in a particular market-rather than solely upon the structure of that particular market.

The degree of relatedness between a joint venture's partners that maximizes the stock market returns upon its announcement continues to be a contentious topic in joint venture literature. With some prior findings suggesting that high inter-partner relatedness may be best for companies and other studies suggesting the contrary, the fl evidence on the matter is inconclusive. In this study, we found that returns are highest when inter-partner relatedness is neither too low nor too high. Further, we found evidence that the type of joint venture matters, with returns being significantly higher for highly related companies when they announce a marketing deal than when they announce a manufacturing one. Key words: Joint ventures, Finn relatedness, Stock market returns INTRODUCTION A joint venture involves the pooling of two (or more) firms' resources within a common legal organization (Kogut, 1988). Joint ventures are common business agreements, yet they are a challenge to managers because their probability of failure is high (Beamish & Lupton, 2009). Further complicating matters for managers is the fact that the impact of the decision to form a joint venture may be felt immediately. Upon the announcement of any particular joint venture deal, the stock market reacts, I adjusting the announcing firms' values according to the impact that investors believe the venture is likely to have on the firms' cash flows (Koh & Venkatraman, 1991; McConnel & Nantel, 1985; Swaminathan & Moorman, 2009). As McWilliams and Siegel (1997) note, a negative reaction by the market can lead to a significant decrease, at least in the short run, to a Ann's overall value. Past research has shed light on a variety of factors that influence the stock market reaction to a particular joint venture announcement. These studies provided evidence that such diverse factors as ownership configuration (Park & Kim, 1997), cultural and institutional distance between partners (Merchant & Schendell, 2000) and joint venture experience (Anand & Khana, 2000; Gulati, Lavie & Singh, 2009; Kale, Dyer & Singh, 2002), among several others, can influence the market reaction to the announcement. Such studies inform us about the factors that might affect the processes that enable a firm to reap benefits from the resources involved in the venture. However, they inform us little about the nature of the resources brought to the joint venture by the partners that in the first place makes them amenable for possible synergy generation, and thus possible value creation. The degree of relatedness between two firms is one such factor that addresses the nature of the resources that may create value in the joint venture context (Koh & Venkatraman, 1991). Relatedness refers to the extent to which the firms' different lines of business or industries are likely to be able to be linked (Luo, 2002). A common argument indicates that because firms from related industries generally possess resources that are similar (Teece, 1982), any collaboration between them has the potential to render cost-based (i.e., economies of scope) and/or revenue-based (i.e., market power) synergies that affect a firm's cash flow positively. Suggesting that synergies of this type may be unavailable to deals between unrelated firms, some researchers have found that joint ventures announced by highly related partners produce a more favorable reaction from the stock market than those that are announced by unrelated partners (Chan, Kensinger, Keown & Martin, 1997; Garcia-Casarejos, Alcalde-Fradejas & Espitia-Escuer, 2009; Koh & Venkatraman, 1991). Notwithstanding, another view suggests that related firms are likely to experience rivalry complexities and other non-cooperative behaviors that may stifle any synergies between them. Because such complexities arise mainly from overlapping of the firms' competitive spheres (Park & Russo, 1996), they may be less likely to occur in the relationship between unrelated partners. …

Advertising levels depend on more than the nature of demand for information. Supply conditions are also important. This chapter examines four variables influencing the supply of advertising: first, economies of scale in production; second, innovation; third, market power and psychological considerations. Finally, we shall consider what is meant by oversupply of advertising.

In spite of the volume of literature produced over the years reflecting concern over the present state of the arts, the situation is likely to continue. However, there are several new ideas that offer some promise for improving our understanding and ability to project new relationships in the agribusiness sector of the Southern region.Although the title of this article implies a one-way set of forces working from agricultural industrialization to market structure, some of our colleagues regard this relationship as a two way process with forces at work in each sector having strong impacts on the other. It is these interdependencies that make the task of model building so difficult and empirical analysis so complex.

Trade union structure varies in different countries, and the role of labour union power in inflation varies accordingly. This is true not merely with respect to the amount of power, but, much more important, with respect to its nature and to the context in which it operates. The conditions envisaged in this paper are mainly those of the economy of the U.S.A. However, I believe (and hope) that the arguments presented will have general validity wherever similar conditions are found. It will be assumed that stable prices are desirable, with no rebuttal attempted against those who like inflation (only a little, of course, and not too fast). The definition of inflation is also not discussed — it does not appear necessary to limit the positions here taken by tying them to any particular definition.

The tradition of analysing the welfare effects of market power by reference to the concept of economic surplus as represented in the previously defined social welfare function is quite ancient, encompassing J. Dupuit (1844) and (certainly) Alfred Marshall. More recently this method has been used by Harberger [30], who was the first economist to use the concept of economic surplus to quantify the welfare effects of monopoly. The neo-classical approach to this issue, as outlined in Fig. 1, produced an unambiguous ‘deadweight’ loss of social welfare from market power and constituted a forceful case in favour of an antitrust policy.

The sweetener industry is divided into several segments, based on geography, the plant (beet, cane, or corn) from which the sweetener is obtained, and the functions performed by different producers. The production and marketing of sugar in the United States have been controlled by a quota system since 1934. This system, supported by the domestic sugar industry, has been administered so that U.S. sugar prices have usually been well above those in the world market. Individual sugar producers apparently have not had sufficient market power to affect the general level of prices over a long period of time. Producers of corn sirup and dextrose have benefited to some extent from the protection received by the sugar industry, since these products compete with sugar. Saccharin, the principal noncaloric sweetener, competes to some extent with sugar.

Publisher Summary This chapter discusses the degree of monopoly power and two-person bargaining games. A market situation is one of cooperation between buyer and seller and conflict between seller and seller or buyer and buyer. It should be considered from the viewpoints of both cooperative and noncooperative games. The noncooperative theory was developed to theory of oligopoly. The chapter presents Nash's cooperative game theory and discusses the income distributional aspects of both cooperative and noncooperative market organization. The chapter further focuses on the implication of Cournot's theory for the factor demands of an industry and commodity supply as a function of other prices. It is found that if market power is assumed to be one-directional, Cournot's theory applies. An example of a pure bargaining game is that of trading between two individuals when one individual can offer only positive quantities of goods to the other. The equilibrium point is simply the no-trade alternative because except for isolation, given that each trader has made a positive offer to the other on the presumption that the others offer was fixed, each would do better by withdrawing his own offer.

No nation or semi-autonomous state has ever found that being geographically situated very close to a much larger and much more powerful state is a comfortable position or an unmixed blessing. The histories of the Austrians, the Finns, the Irish, the Poles and the Vietnamese all testify to the dangers inherent in such a situation. Similarly, in more purely economic terms, metropolises have been able to dominate their hinterlands through the concentration of financial, industrial and market power that the metropolis enjoyed. It is not surprising therefore that when nationality differences and metropolis-hinterland differences reinforce each other, the desirability of the status quo is questioned by the hinterland nation.

The merits and demerits of market power will clearly vary, both in character and degree, from one case to another, and for this reason a pragmatic cost–benefit approach to public policy might seem essential. Yet the cost–benefit approach to the market power problem has its critics as well as its advocates, and a range of alternative policies merits consideration. This survey restricts attention to four separate approaches to market power, all of which have been practised or are currently operational in the economies of the U.S.A. and the U.K., namely (1) laissez-faire; (2) fair-rate-of-return regulation; (3) cost–benefit analysis; and (4) non-discretionary antitrust. Although public enterprise is an alternative solution, it cannot fairly be treated in the space available. Many of the issues encountered in the regulations approach are relevant also for public enterprise. For the most part, discussion is at a theoretical level, with only illustrative references to past or to existing institutional arrangements. Throughout the discussion three separate aspects of the market power problem are carefully distinguished, namely (i) restrictive agreements; (ii) horizontal mergers and acquisitions; and (iii) single-firm monopolisation.

The constant cost assumptions of neo-classical economics were never widely accepted as a characteristic of the real world, and the possibility that scale economies might be sacrificed as a consequence of an effective antitrust policy was always recognised by economists actively engaged in the industrial organisation field. Only in 1968, however (Williamson [84]), was the possibility of a welfare trade-off between the cost savings from scale economies and the loss of consumers’ surplus from market power formalised within a social welfare function framework. In so doing, Williamson restricted his analysis strictly to the case of mergers, which provided simultaneously cost savings on the one hand, but prices in excess of the competitive level on the other. Williamson’s analysis is easily extended to the case of the entrenched monopolist and the possibility of corrective antitrust, and in this sense it may be viewed as being generally applicable to the antitrust policy debate. The essence of the Williamson trade-off approach to the monopoly problem can be distilled from Fig. 2.

ALTHOUGH Schumpeter's views on U. S. anti-trust policy represent a fairly familiar European reaction, in his case these views were heightened by an annoyance with professional colleagues who attempt to apply an economic analysis based on simple "models" to the complicated world of reality; by the possession of a well-developed ideology concerning the evolution and functioning of capitalism that clashes rather violently with typical anti-trust ideology; by adherence to a distinctly aristocratic view of the distribution of talent in the economy and in society; and, finally, by a rather low opinion of the likelihood of developing, in a democracy, a public policy toward the large firm and monopoly that will be anything more than an amalgam of the special interests of particular groups and the rancor of disgruntled intellectuals. These elements combined to make a rather explosive mixture as can be seen by reading Chapters VII and VIII of Capitalism, Socialism, and Democracy, which contain Schumpeter's parting shot at anti-trust policy along with certain other distinguishing features of the current scene. These chapters, which bring together and sharpen earlier views on the role of the large firm in the competitive process, represent one of the most effective as well as most drastic critiques extant concerning traditional patterns of anti-trust thought. The critique is drastic and effective because it plausibly undermines the two main pillars of the traditional ideology: first, that market power is the proper object of attack since power means the ability to exploit; and, second, that the preservation of competition, meaning the exclusion of positions of market power, will assure the efficient use of resources. The essence of Schumpeter's position is that market power is necessary to innovation and that innovation is the core of effective competition.

I would like to congratulate Dr. Helmberger on presenting a rather well-organized review of the literature of firm mergers. Considering the limitations imposed upon him with respect to space and time, he has done a masterful job. His presentation is straightforward and falters only when the literature falters, as is especially true in the area of conglomerate mergers. As a result, I feel that there is little that I can say about Dr. Helmberger's paper per se. I believe that he has brought before us what the specialists in the welfare effects of firm mergers have to say. Instead, I want to raise some questions. (I trust that it is a privilege of discussants to raise questions without attempting to provide answers.) Dr. Helmberger provides us with ample warning at the beginning of his talk that "general welfare" will not be defined in his paper but rather that the "long-run perfectly competitive equilibrium is adopted as a norm." In so doing, he travels in the best of company. However, I would like to depart from such company (at least for today), although I realize that the journey immediately becomes more perilous. Admittedly, using long-run perfectly competitive equilibrium as a bench mark establishes a framework for discussion which places a premium on one of the pillars of economic thought, that is, efficient allocation of productive resources within the society. But this is the very question that begins to gnaw at my mind. Why the continual emphasis on efficient allocation of resources for society as a whole? Before the cry of heresy becomes too loud, permit me to elucidate. Whenever a firm merger is contemplated which might result in a new firm with substantial (usually undefined) market power, it is judged by economists that the merger is detrimental to general welfare. Why? Usually for two reasons: (1) the increased market power results in an income stream to this firm which is larger than would have existed otherwise, and (2) this increased market power results in a malallocation of resources and hence a reduction in the total product which society would otherwise enjoy. I would not attempt to deny these probable results nor to imply that this is not a deviation from the long-run perfectly competitive equilibrium which is usually defined as a norm. It is the definition of this norm which bothers me.

The entry condition in banking is a critical element in framing a public policy on the regulation of bank charters, branching, and mergers. According to the prevailing view, entry into banking would be relatively easy in the absence of legal (including regulatory) restrictions on entry [10, 495]. Those who oppose unrestricted competition in banking argue that free entry would lead to "overbanking," "excessive" competition, and bank failures. Those who favor more competition in banking stress that the social cost of protecting banks against failure has been excessive and that free entry could prevent the development of monopoly in banking or effectively constrain its market power.' The common denominator in these opposing policy positions is the underlying belief that free entry in banking2 is synonymous with relatively easy entry and competition. It is the purpose of this paper to reexamine the nature and market effects of the bank entry condition under free entry in light of Bain's seminal analysis of entry barriers in manufacturing industries [3]. It will be argued that the prevailing view errs in equating free entry with easy entry and competition. It is more likely that free entry would lead to a diversity of entry conditions and market results in different banking markets. The organization of the paper is as follows: Part II discusses the relation between entry and specific banking markets; Part III examines bank entry barriers (other than the need barrier [2] or the legal impediments to interstate branch banking); Part IV analyzes the effects of free entry in different markets; and Part V is the conclusion.