Firm Effects and Industry Effects in the Analysis of Market Structure and Profitability

The Federal Trade Commission's recent public policy emphasis has been on antitrust action to break up firms in certain industries. The basis for such action is often the market structure-profitability paradigm. The authors review the framework and empirical results of studies based on the paradigm, identify and demonstrate shortcomings of research in this area, propose and test a more appealing model, and conclude that the FTC cannot properly rely on findings produced by this research stream for the direction of public policy efforts.