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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Concentration and profits in South Africa: monopoly or efficiency?
Author:Leach, D.F.ISNI
Periodical:South African Journal of Economics
Geographic term:South Africa
Subjects:industrial organization
External link:https://doi.org/10.1111/j.1813-6982.1992.tb01023.x
Abstract:Proposals to deconcentrate industry have been grounded in the traditional structure-conduct-performance (SCP) paradigm of industrial organization. According to that paradigm, industrial concentration fosters collusion and, hence, monopoly pricing. Industrial deconcentration is then proposed as a means of raising the cost of collusion so as to eliminate - or at least reduce - monopoly pricing. H. Demsetz (1973, 1974) turned the SCP view upside down in arguing that the direction of causation was just the reverse: superior low-cost firms would have higher profits and would grow to dominate their industries. W.D. Reekie (1984), however, applied the Demsetz method to 1976 data on manufacturing industries in South Africa, and found the SCP monopoly hypothesis to be 'still fairly securely intact'. This paper argues that Reekie paid insufficient attention to the deficiencies in the data. An extension of Reekie's analysis to more years of data (1972, 1976, 1979, 1982, 1985) and with a superior measure of concentration supports the Demsetz efficiency hypothesis over the SCP monopoly hypothesis. Section 1 of the paper briefly reviews the literature on the issue of competition versus monopoly. Section 2 describes the concentration and profits variables and the data used to measure them. Section 3 presents the results, and section 4 is a summary and conclusion. Bibliogr., notes, ref.