Overview
This chapter is concerned with examining in more detail the measurement of market performance. Having outlined the basic approach and some of the difficulties involved in measuring performance, a number of studies is examined which involve establishing relationships between structure, conduct and performance dimensions. The chapter concludes with a brief introduction to the concept of workable competition.
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References
For example in linoleum Nairn Williamson is a Unilever subsidiary, and Barry & Staines is owned by British Steel Constructions.
O. Morganstern, On the Accuracy of Economic Observations, Princeton U. P., Princeton, 2nd ed. (1963), p. 81
See J. L. Eatwell, Growth, Profitability and Size: The Empirical Evidence in R. Marris and A. Wood (eds.), The Corporate Economy, Macmillan, London (1971), p. 391
See J. Bates, Some Problems in the Interpretation of the Accounts of Unquoted Companies, Business Ratios (Spring 1969), 30–1
G. Polanyi, Detergents: A Question of Monopoly? I.E.A., London (1970), p. 18
C. K. Rowley, Antitrust and Economic Efficiency, Macmillan, London (1973), pp. 10–11. In addition to the problems posed by Rowley, there are others raised by those who question whether the traditional measure of rate of return is sufficiently dynamic (and who would rather think in discounted cash flow terms), and also the issue of whether rate of return on capital alone (as opposed to measures of technical efficiency) is an accurate means of appraising business efficiency.
See G. C. Harcourt, Investment-Decision Criteria, Investment Incentives and the Choice of Technique, Economic Journal, Vol. LXXVIII (1968), 77–95; and R. C. Skinner, Return on Capital Employed as a Measure of Efficiency, Accountancy (June 1965), 530–33
R. T. Nelson, An Outline of Industrial Economics, Economics, Vol. X (1974), 212
See J. M. Samuels & D. J. Smyth, Profits, Variability of Profits and Firm Size, Economica, Vol. XXXV (1968), 127–39. Readers interested in detailed specification of the variables and tests used and the significance levels of individual tests should consult the original studies.
See M. J. Barron, The Effect of the Size of the Firm on Profitability, Business Ratios, (Spring 1967), 13–15. Barron’s data covered a similar period to that of Samuels and Smyth.
See P. E. Hart, Competition and Rate of Return on Capital in U.K. Industry, Business Ratios, (Spring 1968), 3–11
See D. J. Smyth et al., Size, Growth, Profits and Executive Compensation in the Large Corporation, Macmillan, London (1975), Ch. 6.
Ibid. , Ch. 7. This apparent conflict may be attributable to the inclusion in the earlier study of a number of smaller firms.
See, for example, the findings across only four industries of A. Singh and G. Whittington, Growth, Profitability and Valuation, C.U.P., Cambridge (1968), Ch. 6;
and H. K. Radice, Control Type, Profitability, and Growth in Large Firms, Economic Journal, Vol. LXXXI (1971), 547–62
For a wider review of the literature see J. L. Eatwell, Ref. 3, pp. 389–421; and for some conceptual and statistical issues see A.
Phillips , A Critique of Empirical Studies of Relations between Market Structure and Profitability, Journal of Industrial Economics, Vol. XXIV (1976), 241–9
If E = total earnings, C = capital employed, and R = retentions, the maximum rate of internal growth, R/C, is E/C × R/E.
See R. L. Marris, Profitability and Growth in the Industrial Firm, Business Ratios (Autumn 1967), 11–12
J. L. Eatwell, Ref. 3, pp. 409–17
See G. Meeks and G. Whittington, Giant Companies in the United Kingdom, Economic Journal, Vol. LXXXV (1975), 824–43
J. L. Eatwell, Ref. 3, pp. 402
Ibid., pp. 405–6; and J. Bates, in P. E. Hart, Studies in Profit, Business Saving and Investment in the United Kingdom, 1960–62, Allen and Unwin, London (1965), p. 180
G. Meeks and G. Whittington, Ref. 18. Furthermore, in an extension of their original study (Ref. 13 above) Singh and Whittington, using data on 2,000 quoted companies across 21 industries 1948–60, found evidence of a small positive relationship between firm size and growth rates, and also greater uniformity of growth rates among large firms, i.e. a lower standard deviation of growth rates around a higher mean. See A. Singh and G. Whittington, The Size and Growth of Firms, Review of Economic Studies, Vol. XLII (1975), 15–26
D.J. Smyth et al., Ref. 11, 37
For example Johnson quotes Denison’s study Why Growth Rates Differ which indicates that over the period 1950–62, 12–34% of the annual growth rate of Western economies resulted from a ‘residual factor’ related to extensions or increased application of technological knowledge. See P. S. Johnson, Firm Size and Technological Change, Moorgate and Wall Street (Spring 1970), 5. One would also, of course, need to know the composition of such expenditures on research and development. Britain, for example, is held to devote the highest proportion of resources in the world to R. and D., and yet has one of the lowest growth rates. See R. Winsbury, Science and Government in E. Moonman (ed.), Science and Technology in Europe, Penguin, Harmondsworth (1968), p. 91
J. K. Galbraith, American Capitalism, Hamish Hamilton, London (1957) p. 100
See generally ibid., Ch. 7. This thesis also has an earlier ancestry: see J. A. Schumpeter, Capitalism, Socialism and Democracy, Allen and Unwin, London, 2nd ed. (1943), Ch. 7
See J. Jewkes, D. Sawers and R. Stillerman, The Sources of Invention, Macmillan, London, 2nd. ed. (1969), p. 135
For issues in the more complex analysis see D. Needham, Market Structure and Firms’ R. and D. Behavior, Journal of Industrial Economics, Vol. XXIII (1975), 241–55
Jewkes, et al. would propose stronger tests than this. They want to know whether, within concentrated markets, new ideas come from the largest firms; whether each of the large firms makes an equal contribution to invention; whether long-standing concentration in a market breeds a particularly good record of technical progress; whether a change from a competitive structure to concentration rapidly generates increased research; and whether, in industries comprising concentrated and unconcentrated sectors, appropriate differences can be observed in the record of research and development. See J. Jewkes et al., ibid., 130–1
See A. Phillips, Concentration, Scale and Technological Change in Selected Manufacturing Industries 1899–1939, Journal of Industrial Economics, Vol. IV (1956), 179–93
Invention is regarded as being the creation of an idea and its expression in practical terms. Innovation is the conversion of an invention into a potential commercial proposition. For a further review of findings in this area see B. Lloyd, Invention Innovation and Size, Moorgate and Wall Street (Autumn 1970), 35–62
See P. S. Johnson, ibid., 9
C. Kennedy and A. P. Thirlwall, Technical Progress, Economic Journal, Vol. LXXXII (1972), 61
P. S.Johnson, Ref. 23, 10
M. I. Kamein and N. L. Schwartz, Market Structure and Innovation: A Survey, Journal of Economic Literature, Vol. XIII (1975), 3
W. D. Reekie, Location and Relative Efficiency of Research and Development in the Pharmaceutical Industry, Business Ratios (Spring 1969), 6–9
One rather interesting additional comment on the research and development effort by large firms relates to the short-lived, low risk nature of much innovatory activity. U.K. data relating to R. and D. expenditures by large firms in 1971–2 show that 60% of such projects are completed in two years or less, and that 80% of projects are expected to be brought into use within a period of two years. See K. Schott, Investment in Private Industrial Research and Development in Britain, Journal of Industrial Economics, Vol. XXV (1976), at 83–87
See H. M. Mann, J. A. Henning and J. W. Meehan Jr., Advertising and Concentration: An Empirical Investigation, Journal of Industrial Economics, Vol. XVI (1967) 34–45; W. S. Comanor and
T. A. Wilson, Advertising, Market Structure and Performance, Review of Economics and Statistics, Vol. XLIX (1967), 423–40;
and L. A. Guth, Advertising and Market Structure Revisited, Journal of Industrial Economics, Vol. XIX (1971), 179–98
See R. A. Miller, Market Structure and Industrial Performance: Relation of Profit Ratio to Concentration, Advertising Intensity, and Diversity, Journal of Industrial Economics, Vol. XVII (1969), 104–18;
and W. S. Comanor and T. A. Wilson, On Advertising and Profitability, Review of Economics and Statistics, Vol. LIII (1971), 408–10
K. Cowling, J. Cable, M. Kelly and T. McGumness, Advertising and Economic Behaviour, Macmillan, London (1975), p. 110
See C. J. Sutton, Advertising, Concentration and Competition, Economic Journal, Vol. LXXXIV (1974), 56–69
K. Cowling et al., Ref. 39, pp. 89 and 93
Ibid., pp. 125–6
J. Khalilzadeh-Shirazi, Market Structure and Price-Cost Margins in U.K. Manufacturing Industries, Review of Economics and Statistics, Vol. LVI (1974), 67–76.
S. E. Holtermann, Market Structure and Economic Performance in U.K. Manufacturing Industry, Journal of Industrial Economics, Vol. XXII (1973), 119–20
See J. M. Clark, Toward a Concept of Workable Competition, American Economic Review, Vol. XXX (1940) 241–56
S. H. Sosnick, A Critique of Concepts of Workable Competition, Quarterly Journal of Economics, Vol. LXXII (1958), 383
See J. S. Bain, Industrial Organization, Wiley, New York, 2nd ed. (1968), pp. 13–14 and 22–25
For Sosnick’s performance norms see S. H. Sosnick, Ref. 46, pp. 416–18
Ibid., p. 384
W. P. J. Maunder, Workable Competition and the Assessment of Market Performance, Loughborough Journal of Social Studies, Vol. II (1969), 22
J. K. Galbraith, Ref. 24, 105
D. Swann, D. P. O’Brien, W. P. J. Maunder and W. S. Howe, Competition in British Industry, Allen and Unwin, London (1974), p. 109
See ibid., pp. 103–109 for amplification of these criticisms.
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© 1978 W. Stewart Howe
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Howe, W.S. (1978). Market Performance. In: Industrial Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-86141-5_4
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