The proportion of an industry's output concentrated in a few large firms is recognized by economists as an important characteristic of industrial structure. Economic analysis agrees with the layman's judgment that high concentration is a major factor making for monopolistic practices, and there is ample confirmation in the record of antitrust investigations.
The degree of concentration is of course not by any means the only determinant of market behaviour. In the absence of collusion or government regulation, however, high concentration is a necessary condition for monopolistic practices, while low concentration is a necessary condition for the type of competition that tends to equate price and marginal costs. Moreover, with low concentration informal collusion is unlikely and the organization of formal collusion (for example, through a trade association) becomes difficult. Government regulation is frequently the result of political pressures the strength of which reflects either high concentration or close association of the business interests involved.
It is therefore important to investigate the degree of concentration and its causes. This paper presents a comparison of concentration in the manufacturing industries of Canada and the United States. We find, first, that most industries are more concentrated in Canada than in the United States. This can be ascribed to the fact that industries are typically much smaller in Canada, while firms are of about the same size as in the United States. Secondly, we find that industries with relatively high concentration in one country also tend to have relatively high concentration in the other, though the correlation coefficient is only about 0.7. It appears that cultural and technical similarities make for similar industry-size patterns in the two countries, while the technical similarities mean, further, that industries with a relatively large average size of firm in one country also have relatively large firms in the other.