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The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior

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Abstract

An important and controversial stylized fact inindustrial organization is the positive correlationbetween industry profit and concentration. Oneinterpretation of this finding is based on thetheories of Chamberlin and Stigler, which imply thatconcentrated industries facilitate collusion. Butnon-cooperative profit maximizing behavior can alsogenerate a positive correlation. This paperpresents an equilibrium model of oligopoly whichnests the behavioral assumptions of Bertrand,Cournot, and Chamberlin. Simulations of the modelunder the Cournot assumption yield regressioncoefficients for the profits-concentration relationthat are very close to the estimated coefficients inthe literature.

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Gisser, M., Sauer, R.D. The Aggregate Relation between Profits and Concentration is Consistent with Cournot Behavior. Review of Industrial Organization 16, 229–246 (2000). https://doi.org/10.1023/A:1007817706987

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  • DOI: https://doi.org/10.1023/A:1007817706987

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