Friday, May 8, 2009
Posted by D. Daniel Sokol
Rigoberto A. López (Agricultural and Resource Economics, University of Conneticut) Elena López (Economics - Universidad de Alcalá) and Carmen Liron-Espana (System Planning, ISO-NE) ask and answer When is Concentration Beneficial? Evidence from U.S. Manufacturing.
ABSTRACT: This article estimates the impact of industrial concentration on market power and cost and then links the ensuing welfare changes to market structure characteristics using a sample of 232 U.S. manufacturing industries. Empirical results indicate that further increases in concentration would enhance welfare in 70% of the industries due to widespread efficiency gains, although these would generally not be passed on to consumers. From a social standpoint, further concentration is more likely to be beneficial in industries with economies of size, high export intensity, which are engaged in consumer-oriented goods, face larger markets, and have low or moderate levels of initial concentration.