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Concentration and Productivity: A Broader Perspective
Abstract
Zitzewitz's suggestion, in a Journal of Industrial Economics March 2003 article, that Britain's pre-World War One lead over the USA in tobacco manufacturing productivity was due to its more competitive market cannot be sustained. A larger country sample shows a positive relationship between concentration and productivity, while accurate measurement of US and UK concentration shows similar concentration levels until 1911. The later US lead, though plausibly induced by antitrust-enforced competition, was due to tougher labour management rather than to stronger technical innovation.
... They conclude that "growth in output and the degree of concentration are the primary determinants of long-run productivity change"(p.1033). 27 The e¤ect of concentration however is small. They also …nd evidence indicating that capital-intensive industries have higher productivity changes than other industries (p. ...
... The results for South Africa reported above are important, but we advice caution in interpretation for at least two reasons: First, as discussed above, the totality of the evidence on the relationship between concentration and productivity is mixed and thus inconclusive. For instance, whereas Zitzewitz (2003) …nds a positive correlation between product market competition and productivity in the U.S and U.K tobacco industries, Hannah (2004) …nds the opposite (at least for the period before the First World War). He …nds that if the sample of countries is expanded beyond these two countries (U.S. and U.K.), a positive correlation emerges (p. ...
... In other words, based on fundamentals, South Africa's listed …rms perform well below their world counterparts.As pointed out above, in the absence of speci…c risks, one would expect arbitrage to more or less equalise relative markups. Third, on the curtailment of productive capacity, it is not obvious that high industry concentration is not amenable to investments and innovations (see for instance Tirole, (1988); Hannah (2004). It should be noted that, in general, there is no obvious relationship between concentration and competition. ...
This paper surveys the literature on the manufacturing sector in South Africa, focusing on concentration and markup levels, with a view to inform policy. The literature has employed a number of different measures of industrial concentration, namely, the Gini and Rosenbluth indices, the Occupancy Count, the C5% index and, to a lesser extent, Concentration Ratios and the Herfindahl-Hirschman index. Generally, manufacturing industry concentration is found to be high and increasing up to 1996. However, all the measures show decreasing concentration post-1996. In respect of markups, the evidence suggests that markups in South Africa are significantly higher than they are in comparable industries world-wide and they appear to be non-declining. However, there are dissenting voices on this point. We then juxtapose the concentration and price-cost margins findings to industry performance (at the macro level). In particular, we review the literature that examines the relations between concentration and price-cost margins on the one hand and output growth, productivity growth, employment, employment growth, investment and export and import competitiveness on the other. We then draw implications for competition policy in South Africa, pointing out areas that need further research as well as international best practices.
The now-famous merger movement that highlighted the economic cross-currents of the late nineteenth century created no more controversial enterprise than James B. Duke's American Tobacco Company. From the time of its incorporation in 1890, Duke's firm dominated the cigarette business, for which it is so justly renowned, but this controlling position by no means extended into other branches of the industry, particularly the manufacture and marketing of chewing tobacco, or what was known as plug. Yet with almost ineluctable force, Duke and his associates gradually extended their domination to this segment of the business, albeit by a much more uncertain course that included the “plug war” of the mid-1890s and some questionable securities transactions later on. While Dr. Burns takes no side in the still-simmering controversies of the day, in this essay he examines the historical events through which American Tobacco acquired its dominant position in chewing tobacco; equally important, he brings economic theory and new empirical evidence to bear on the contentious issue of predatory pricing as a strategy of monopolization, and from that emerges his surprising conclusion.
Acknowledgements 1. Introduction and overview Part I. Measuring Comparative Productivity Performance: 2. International comparisons of productivity in manufacturing: benchmark estimates by industry 3. Labour productivity in aggregate manufacturing: Britain, the United States and Germany 4. Extending the picture: manufacturing productivity in other industrialised countries 5. Manufacturing and the whole economy Part II. Explaining Comparative Productivity Performance: 6. Technology 7. Economic geography: markets and natural resources 8. Accumulation of physical and human capital 9. Competition and adjustment Part III. Reassessing the Performance of British Industry: 10. The rise of competition from abroad, 1850-1914 11. War and depression, 1914-50 12. Changing markets and technology, 1950-90 13. Concluding comments Bibliography Index.
The Organization of Industry collects essays written over two decadesâpieces prepared especially for this volume, previously unpublished material, and reprinted articles drawn from numerous sources, many which include additional commentary by the author. The essays are unified by George J. Stigler's careful analysis and by his clear and witty style. In part one, Stigler examines the nature of competition and monopoly. In part two he discusses the forces that determine the size structure of industry, including barriers to entry, economics of scale, and mergers. Part three contains articles on a wide range of topics, such as profitability, delivered price systems, block booking, the economics of information, and the kinky oligopoly demand curve and rigid price. Part four offers a discussion of antitrust policy and includes Stigler's recommendations for future policy as well as an examination of the effects of past policies. "Stigler's writings might well be subtitled 'The Joys of Doing Economics.' He, more than any other contemporary American economist, dispels the gloom surrounding economic theory. It is impossible to confront the subject treated with such humor and verve and come away still believing that economics is the dismal science."âShirley B. Johnson, American Scholar
This paper investigates whether predatory price cutting reduces a trust's cost of acquiring its competitors. A variant of the Litzenberger-Rao valuation model is estimated with the expenditures for 43 rival firms purchased by the old American Tobacco Company between 1891 and 1906. The coefficient estimates indicate that, ceteris paribus, alleged predation significantly lowered the acquisition costs of the tobacco trust both for asserted victims and, through reputation effects, for competitors that sold out peacefully. Although qualified by data limitations, these results support the classical view of predatory pricing as a systematic business practice.