Market Power,Efficiency and the Dispersion of Systematic Risk |
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Authors: | Alexander Donald L Thistle Paul D |
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Institution: | (1) Department of Economics, Western Michigan University, 1201 Oliver St., Kalamazoo, MI, 49008 |
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Abstract: | A number of studies have used the Capital Asset Pricing Model (CAPM) to integrate product market and financial theories of the firm. We reexamine the relationship between product market structure and systematic risk at the firm and industry level. We show that theory yields no testable implications at the firm level. We show, however, that there is a relationship between the intraindustry dispersion of systematic risk and industry concentration which depends on the causes and consequences of concentration. Estimates of the relationship between the intraindustry variance of and concentration for a 1987 cross-section of U.S. industries suggest that concentration allows larger firms to exercise market power. |
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Keywords: | Market power CAPM concentration efficiency entry barriers systematic risk |
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