THE CRITICAL LEVEL OF CONCENTRATION: AN EMPIRICAL ANALYSIS.

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.