Market Structure, Oligopoly, and Stability of Market Shares

Abstract

OLIGOPOLY has presented a formidable problem in both theoretical and empirical research. The recognized interdependence of the oligopolistic participants denies us access to a unique deterministic model of oligopolistic markets; diverse theoretical approaches are in use-some deterministic, some taxonomic like Fellner's rich approach to the oligopolistic bargain. The lack of theoretical consensus on outcomes in oligopolistic markets raises the payout to empirical testing of the competing theoretical approaches. Yet empirical research has focused on the relation between market structure and profits, ignoring the behavioral mechanisms by which structures that facilitate the recognition of mutual dependence lead to above normal profits, and confining itself largely to one group of structural factors-the number and size distribution of firms in the industry. The instability of market shares, especially among an industry's leading firms, provides a measurable indicator of rivals' behavior in oligopolistic markets. The stability of shares reflects the stability and completeness of the oligopolistic bargain, as well as the size and nature of exogenous disturbances to that bargain. With these latter factors controlled, an analysis of the determinants of market-share stability promises to increase our understanding of how market structure influences oligopolistic behavior. In the following sections we identify the determinants of the stability and completeness of the oligopolistic consensus and hence of the stability of market shares. The effect of the indicated determinants is tested on the instability of leading businesses' shares in a cross-section of United States manufacturing industries.1 The normative significance of instability, not a central concern of this paper, will be discussed in the concluding section.

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