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- Title
CONCENTRATION AND PROFITABILITY IN A SMALL OPEN ECONOMY.
- Authors
Jacquemin, Alexis; De Ghellinck, Elisabeth; Huveneers, Christian
- Abstract
This article examines the validity of national and domestic concentration indices as expressing domestic industrial market power in a small open economy. In industrial organization, it is commonly accepted that concentration ratios are useful indices of market power and that a positive relationship exists between these indices and profitability. Contrary to what is sometimes argued, theoretical bases can be found to support these views. One aspect which is crucial for an open economy is the role of international trade. By overlooking it, numerous studies have not only used inappropriate variables to detect the existence or the effect of monopoly power, but have neglected the theoretical implications of the role of international factors for the behavioral relation between market structure and market performance. The results of the statistical analysis based on the two equations model, applied to the Belgian manufacturing industry in 1973, support the view that, at the level of aggregation, none of them is relevant for small economies largely open to international trade. On the one hand, the role of exports shows the overestimation produced by national concentration ratios and, on the other hand, imports associate domestic concentration with lower industrial price-cost margins. By contrast, variables expressing actual foreign competition play a role in affecting industrial concentration and profitability.
- Subjects
BELGIUM; PROFITABILITY; INDUSTRIAL marketing; INDUSTRIAL organization (Economic theory); INTERNATIONAL trade; MANUFACTURING industries
- Publication
Journal of Industrial Economics, 1980, Vol 29, Issue 2, p131
- ISSN
0022-1821
- Publication type
Article
- DOI
10.2307/2098166