June 4, 1975

HEMORANDUM FOR: Arnold Collery

FROM:

SUBJECT:

Steve Dixon

Weighted Concentration Ratios for Competitive and
non-Competitive Industries

Employing Gardner Heans' categorizations, I have calculated weighted 4-firm concentration ratios for a group of competitive as well as non-competitive industries. Classified as competitive were industries with the BLS headings of "Textile Products and Apparel," and "Hides, Skins, Leather and Related Products" while the non-competitive group consisted of industries subsumed under "Metal and Metal Products," "Pulp, Paper and Allied Products," "Rubber and Plastic Products, "Machinery and Equipment," "Transportation Equipment," and "Nonmetallic Mineral Products." Absolute weights were obtained from BLS statistics and those were translated into relative weights by summing the absolute weights and then dividing each individual weight by that figure. The results of these calculations are as follows:

CC:

Weighted Concentrated Ratio (Competitive Industries)

- 29.775

Weighted Concentration Ratio (Non-Competitive Industries) - 42.709
Calculating a simple mean produces the following results:

Concentration Ratio (Competitive Industries) - 33.429

The following is a graphical examination of four firm concentration ratios of four digit SIC code industries and index levels of WPI numbers associated with them. These industries in question fall into two classifications having been designated by Gardiner means as competitive, or concentrated industries. The competitive industries are those associated with the BLS classifications of "Textile Products and Apparel" and "Hides, Skins, Leather and Related Products." The concentrated industries included BLS classifications of "letal and Metal Products," "Pulp, Paper and Allied Products," "Rubber and Plastic Products," "liachinery and Equipment," "Transportation Equipment," and "Ronmetallic Hineral Products."

The appropriate SIC code industries were arrived at by going through a
listing of the concordance between the Census and WPI product codes.
When ever a WPI number associated with one of the above classifications
came up, the first four numbers of the Census code were noted -- this was
the four digit SIC code. The appropriate volume of the 1972 census of
manufacturers has not yet been published, therefore the four firm concen-
tration ratios were taken from the 1967 census of manufacturers. When
the industry or the concentration ratio was not listed in the Census
document, this industry was ignored, except for the case of primary
aluminum, where primary capacity figures were used as a proxy for sales
in determining the 1967 concentration ratio.

Within each BLS category, the item or items most closely associated with the SIC industry were noted, as were their wholesale price indexes for Harch 1975 if available and if the base year was 1967. If these conditions were not met, the item was ignored. If there were several items, these were weighted according to their BLS weights to arrive at an Industry Wholesale Price Index, 1967 = 100, for each SIC industry. Tables 1 - 8, broken down into eight BLS classifications mentioned above, show the SIC number, the name of the industry, the four firm concentration ratio, and the Industry Wholesale Price Index for each industry where complete information was available.

The data presented in the tables were transferred into 10 scatter diagrams. Figures 1 - 8 show each of the eight BLS categories, Figure 9 aggregates the competitive industries as defined by ir. ¡leans, and

Figure 10 aggregates what he designated as concentrated industries. The points are identified by SIC number on the diagrams denoting the respective BLS categories.

The figures show that while the wholesale price index for the so-called concentrated industries rose to greater heights by March 1975 than the competitive industries, the concentration ratios didn't have much to do with it. A look at the composite scatter diagram for the concentrated division even suggests a slightly negative correlation between domestic concentration and the level of the WPI in March 1975.

Attachments

Table 1

Four Firm Concentration Ratios and larch 1975 Industry
Wholesale Price Indexes for BLS Category

SIC

Code

Table 2

Four Firm Concentration Ratios and March 1975 Industry
Wholesale Price Indexes for BLS Category