RELATIONSHIP BETWEEN MES

Relationship between MES



Relationship between MES

The level of seller concentration in an industry depends on two characteristics of the size distribution of the firms concerned: their number and the inequality of their sizes. Acknowledging these two dimensions, the aim of this paper is to construct a unified theoretical framework, capable of shedding some light on the economic forces which determine the degree of concentration. It builds on the analysis of two schools of thought within the existing literature. The first of these we shall label the 'technological explanation of concentration', since it emphasizes the role of the cost curve (in particular, the minimum efficient scale of production) and barriers to the entry of new firms. Implicitly, this attaches most importance to the firm number component of concentration. The second school includes the various stochastic models of firm growth. These models have demonstrated the influence on concentration of what is sometimes called 'luck', or, more deterministically, those factors which might influence the spread of growth rates of firms within an industry. To that extent, these models emphasize the other component of concentration - size inequalities. We see our present contribution as an attempt to build a bridge between these two approaches. We develop the well-known Simon and Boning (I958) stochastic growth model in such a way as to provide a formal statement of the technological explanation; and then discuss various ways of deepening the economic content of their original contribution. Section I provides a brief resume of the technological explanation, and Section II describes the salient features of the Simon and Boning model. It goes on to show how this model can be used to disentangle a mathematical relationship between the concentration ratio and (I) minimum efficient scale (ii) the share of sub-optimal firms and (iii) the degree of firm size inequalities. This relationship is tested, with some success, using I968 UK Census data. An important conclusion of the Simon and Boning model is that firm size inequalities depend crucially on the probability of entry by new firms. Section III considers how this proposition may be invested with more economic content. The discussion is couched at a fairly general level, but in the Appendix we suggest a specific model which explains entry as a consequence of the fact those incumbent firms typically operate in a world of demand uncertainty, where entry deterrence may be too costly. It provides specific economic prediction concerning the entry probability, whilst remaining within the spirit of Simon and Konini's approach(Caves, 1977).

Define 'abuse'. What they are doing is exploiting an advantage which they have either created through their own effort, or had handed to them by government intervention. If you don't see a difference between initiative and manipulation, then all profit is theft, and yes, dominant companies are therefore by definition abusive.

No. In fact, I happened to do my graduate thesis on the subject. There is simply no statistical correlation between market concentration ratios and pricing in the ...