New Results from Structural Modeling of Collusion and Efficiency

Abstract

The Old Empirical Industrial Organization (OEIO) used OLS to analyze the correlation between concentration and industry profits. There are two competing hypotheses--collusion (Bain 1951) or superior competitors (Demsetz 1973). The New Empirical IO (NEIO) undertakes industry specific structural analyses. Like NEIO, we apply a structural model; like OEIO, we address the collusion versus competition question. We first apply our model to 54 Korean industries separately and then pool the data finding support for both the collusive and superior firm hypotheses. Going beyond this we also find the collusive effect dominates.

Keywords: Concentration & Profits, Structural Modeling, Collusive Hypothesis, Superior Firm Hypothesis, Korean Competition

JEL Classification: L1