Knowledge that Transforms

I owe thanks to F Bosch-Font, M. J Bowman, R. Layard, G. Psacharopoulos, the participants of the 1975 Conference of the International Institute of Public Finance, and several anonymous referees of this journal for helpful comments on an earlier version of this paper. However, being obdurate by nature, I have not taken account of all their comments. They are therefore in no way responsible for what follows.

and seller concentration is not evidence of countervailing power but merely the result of spurious correlation induced by own industry purchases. When they test this proposition by regressing BCR on SCR, and including dummy variables to account for own industry purchases, the regression coefficient of SCR remains positive and statistically significant at the 0.05 level for 4 and 8 firm CR's. The positive relation becomes insignificant only when the definition of own industry purchases is expanded to include any sales in the same two-digit group. Their justification for a wider definition is that four-digit industries in the same two-digit group use similar technologies and therefore have similar degrees of economies of scale, so that the observed correlation is induced by natural forces rather than by countervailing power. The similarity of economies of scale is asserted, but no supporting evidence is offered. In fact, two-digit groups are rather broad and, for intermediate production, generally contain successive stages of production of a class of finished products. A look at the cases where the top four or eight purchasers are ifl the producing industry's own twodigit group will raise doubts about whether these represent similar, technologies. For BCR4, there were ten cases where the top ranked consuming industry was in the same two-digit group as the producing industry.4 They included the following pairs of four-digit industries: Yarn Mills and Broadwoven Fabrics, Processed Textile Waste and Upholstery, Knit Fabric Mills and Apparel Made from Purchased Materials, Logging Camps and Saw Mills, Pulp Mills and Paper Mills, Paper Mills and Sanitary Paper Products, Primary Aluminum and Aluminum Rolling and Drawing, Secondary NonFerrous Metals and Primary Aluminum, Industrial Controls and Switch Gear. It is doubtful that similar degrees of concentration in these pairs are primarily the result of similar economies of scale in production and not induced by attempts to attain countervailing power.