When firm sizes are distributed according to the Pareto law, mergers or acquisitions may either increase or decrease business concentration as measured by the slope, on a double-log scale, of the distribution. Whether mergers and acquisitions will increase or decrease concentration depends upon the size distribution of the acquired assets among the firms that survive. Some data from the U.S. economy are consistent with a set of conditions under which industrial concentration is unaffected by mergers, thus offering an explanation for the observed fact that the overall concentration of U.S. firms, as measured by the slope of the Pareto curve, has not changed substantially since the turn of the century. The findings challenge the widely held view that mergers held view that mergers "obviously" increase concentration and reduce competition.

Cost allocation, Direct costs, Full costs , FIFO

We do not have any quarrel with the statistical analysis in Kinney's note. In our first paper on this subject, we acknowledged that an auditor may sample high-valued items because of their normal association with high variance.' Similarly, sampling from a high error rate category may be explained as contributing to representative sampling because of the higher degree of contribution in reducing the error of estimate. Finally, random sampling is consistent with the auditor wishing to make statistically valid statements about the population from which a sample is chosen. Our papers,2 however, attempted to point out that there may be nonstatistical reasons which also explain the above set of auditors' behavior; i.e., auditors may sample high-valued items to cover as much of the total dollar value in the population as possible (protective sampling); they may sample high error rate categories to correct as many items as possible; and they may use random sampling to create a greater degree of uncertainty as to the scope of future audits to deter potential errors in the future (preventive sampling).

Auditing, Sampling plan, Representative sampling, Preventive Sampling

Probabilistic depreciation is a method of determining the proper depreciation charge in each year of an asset's service life, when the service life is a random variable with known distribution. The paper discusses how the service life distribution is modified as more information is obtained about the actual lifetime of the asset. The problem of determining the proper amount to be charged each year to depreciation while at the same time maintaining the proper balance in the accumulated depreciation account is considered. The analysis is done both for a single asset case and for group depreciation. A final section discusses the use of Bayesian analysis for estimating the particular form of the service life distribution while the assets are in service.

In this article the authors comment on the manuscript "Sampling for Integrated Audit Objectives--A Comment," written by Edward Blocher, published in the July 1978 issue of the journal "The Accounting Review." The three methods discussed in Blocher's paper are reasonable, but there are many other possible approaches, as discussed in the literature in psychology, statistics and measurements. The question of which is better can be settled only through actual experiments. Some of the extensions and refinements discussed in the paper may be useful and improve the overall effectiveness of auditors' sampling, provided that they do not cause serious difficulties in estimating a far greater set of parameters than that required under our original formulation. Needless to say, there is a trade-off between the complexity of a model and the ease of implementation in an actual situation. The issue stated in the fifth paragraph is of minor importance, but the authors wonder how much practicing auditors would agree with the author's statement, many auditors in practice may not make corrections if the aggregate effect of the errors is not material.