Testable Competing Hypotheses from Structure-Performance Theory: Efficient Structure versus Market Power

Frederick H deB Harris

Journal of Industrial Economics, 1988, vol. 36, issue 3, 267-80

Abstract: This paper provides a structure-performance theory that can accommodate leading firm efficiency as well as several competing market power hypotheses. The author derive s testable implications distinguishing the simple collusion, product differentiation, and scale economy hypotheses from the innovative lea ding-firm alternative. It is shown that recent evidence of a positive market share-price-cost margin (PCM) relationship and a nonpositive concentration-PCM relationship can reject the scale economy and simpl e collusion hypotheses in homogeneous product markets. Unfortunately, this same evidence cannot reject the product differentiation hypothe sis in favor of leading-firm efficiency. Copyright 1988 by Blackwell Publishing Ltd.

Date: 1988
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