A regulated firm that can make decisions both before and after uncertainty is resolved with respect to input use cannot be led to competitive solutions by regulatory price ceilings. Whether those ceilings are imposed before or after the resolution of uncertainty, they present incentives for undercapitalized production, contrary to usual AJ assertions. Under these conditions the Fair Return objective is neither a sufficient nor an unambiguous regulatory target.

T HE traditional hypotheses of industry organization relate various aspects of market structure to cross-sectional variation in profitability among industries or firms. It is presumed that association between profitability and structure indicates the existence of excess profits that would be absent under perfect competition. The fundamental causes of excess profits reaped by a whole industry are the existence of entry barriers, and the ability of firms within the industry to coordinate their output-price decisions. On the other hand, varying profitability among firms even within an industry may be due either to the superior bargaining position of the firm within a system of oligopolistic coordination or to superior efficiency in production and distribution. The relationship of structure and profitability, and the attendant interpretations, have been repeatedly examined at the level of ex post rates of return on capital. Such rates are by nature backward-looking since they register the average success of past investments. They do not, therefore, reveal the ability of a firm to retain and extend its excess returns into the future. In contrast to traditional studies this paper seeks to examine the future-oriented implications of market structure. A forward-looking index of profitability is a firm's market value. The basic issue which can be examined in the light of a value-based test of profitability and market structure is this: Does current structural position imply an ability on the part of the firm to maintain excess profits in the future? It must be noted that even if current structural position implies (or is implied by) superior efficiency, the ability of the firm to maintain such advantages into the future implies correspondingly a deficiency in the long-run competitive process since entry would presumably be expected to wipe out such efficiency differentials. It should also be clear that even if the basic question posed were answered in the negative, this would not imply that structural position is unrelated to ex post profits. Thus, the scope of the current work is complementary to traditional studies. The theoretical premises of the hypotheses are laid out in section B. Section C contains a description of specification for statistical tests. Section D presents empirical results and section E summarizes major conclusions.

Stavros B. Thomadakis, Session Topic: Finance and Industrial Organization: Discussion, The Journal of Finance, Vol. 31, No. 2, Papers and Proceedings of the Thirty-Fourth Annual Meeting of the American Finance Association Dallas, Texas December 28-30, 1975 (May, 1976), pp. 748-751

This article hypothesizes that resources employed in concentrated industries are more specialized and durable and therefore less mobile than resources employed in atomistic industries. The hypothesis is tested by estimating the relationship between changes in the market value of a firm's securities and changes in its earnings levels and comparing this relation under different market structures. The response of market values to earnings changes is found to be greater for concentrated industries than for atomistic industries. This difference is interpreted as evidence that abnormal earnings persist longer in concentrated industries because of the lower degree of resource mobility.

The valuation of the firm in the context of the Capital Asset Pricing Model (CAPM) of Sharpe [22] and Lintner [18] brings into a new focus the product ion-investment decisions of the firm faced with demand and cost uncertainty. The market value of the firm and the level of systematic risk which arise from its product ion-investment decisions become items of primary importance. Although there are earlier treatments of the real determinants of valuation and risk in a dynamic context (e.g., Thomadakis [24] and Myers and Turnbull [20]), the case of a firm which experiments for the acquisition of information can furnish new insights.

The mean-variance capital-asset-pricing model forms the basis for much of the theoretical and empirical work in modern financial economics. While this model defines the relevant measure of the risk of a security 0 in a general equilibrium context. the relationship between this measure and the microeconomic variables of a firm has not been studied in the literature. This paper develops a model of the firm under uncer-tainty and derives the relationship between systematic risk and such firm variables as monopoly power, demand elasticity, and the labor-capital ratio. The general con-clusions are surprisingly robust and point to several interesting empirically testable hypotheses. I.