ABSTRACT
Under the pressure of competitive rivalry, and in the apparent absence of effective barriers to entry, it would seem that the concentration of an industry’s output in a few fi rms could only derive from their superiority in producing and marketing products or in the superiority of a structure of industry in which there are only a few fi rms. In a world in which information and resource mobility can be secured only at a cost, an industry will become more concentrated under competitive conditions only if a differential advantage in expanding output develops in some fi rms. Such expansion will increase the degree of concentration at the same time that it increases the rate of return that these fi rms earn. The cost advantage that gives rise to increased concentration may be refl ected in scale economies or in downward shifts in positively sloped marginal cost curves, or it may be refl ected in better products which satisfy demand
at a lower cost. New effi ciencies can, of course, arise in other ways. Some fi rms might discover ways of lowering cost that require that fi rms become smaller, so that spinoffs might be in order. In such cases, smaller fi rms will tend to earn relatively high rates of return. Which type of new effi ciency arises most frequently is a question of fact.
