There are two fairly obvious alternative explanations of why one firm or a few firms sell the bulk of the output in a given industry. One is that they in some way exercise “control” over others — either by being able to exclude potential competitors or by intimidating them from competitive pricing by threats to ruin them financially. An opposing explanation is that firms differ in efficiency — whether in production, in the quality of the product, in shipping costs, or in the general quality of their respective managements. Those who argue that concentrated industries represent monopolistic control, in some sense, deny production efficiencies, product quality differences or differences in management. For example, management quality differences are simply
The alternative hypothesis is that some industries are concentrated because some firms’ products are simply preferred by consumers, either because of their quality, price, convenience or other appeal. If this is true, then the slightly greater profitability of industries with few sellers is not because the whole industry is more profitable (as it would be under collusion), but because some particular firms have a higher profit rate which arithmetically brings up the average, while it economically does
The weakness of the case for believing that industries with few sellers have monopolistic practices or results is indicated by (1) the absence of any evidence generally accepted as convincing by either the legal or the economics profession, (2) the arbitrary definitions and sweeping assumptions included in such evidence as is offered, and (3) the policy position of “deconcentration” advocates that the burden of proof must be put on defendants in concentrated industries to show that they are
Much of the legal and economic analysis of industries where one or a few firms produce and sell most of the output give great weight to the supposed homogeneity of the product, which should presumably preclude any rational basis for a consumer preference that would lead to such disproportionate market shares. However, on closer scrutiny this supposed homogeneity usually turns out to mean that
In such cases, so-called “expert” testimony can be the most misleading kind of testimony. The expert has, by definition, already paid more cost for knowledge than the average consumer, and so has far lower present or prospective incremental knowledge costs than the consumer. The mere fact that he can render a judgment on the product means that he has already located a place from which to obtain a specimen. That he knows how to produce equivalent results from “similar” products means that he has sufficient knowledge of