B AINis (1956) analysis of the sources of barriers to new competition suggests that scale economies to the plant or firm allow sellers to elevate price somewhat above average cost without attracting new rivals. Multivariate statistical analyses of the determinants of seller concentration and profits henceforth have included measures of scale economies among their independent variables. However, direct measures, based on engineering or survey evidence, have been available to only a few investigators (Bain, 1956; Eastman and Stykolt, 1967). Others have employed various statistical proxies for the missing firsthand evidence. This paper proposes a new way to form these surrogate measures, compares its properties with those of previous approaches, and reports its performance in two recent studies of allocative efficiency in manufacturing industries.
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