RELATION OF PROFIT RATE TO INDUSTRY their rates of return on equity, either gross or net of the interest rate as between their sales rates? For comparisons of individual cases the answer is no, since the ratio of equity to sales will vary among cases. However, so far as there is on the average among groups of firms or industries being compared about the same ratio of equity o sales, their average equity rates should stand in about the same relation as their sales rates. Then, assuming the sales-equity ratio averages the same for industries of different concentration, the postu lated relation of industry concentration to profit rate should hold for rates of return on equity, net or gross of imputed interest, as ell as for sales rates. An additional source of profit-rate variation within groups has been introduced if equity rates are used, but the average relation should be roughly the same The validity of this assumption and of the derived conclusion has been tested by experimental calculations for groups of industries of the relationship of profit rate to concentration, using first the equity rate, second the rate of excess profits on sales, and third the rate of earning before all interest on total investment. There is no significant difference in the findings on group-average relationships by the three methods. The crucial ratios appear to be similar enough so that for statistical purposes the measures are effectively interchangeable hence, subsequent to the experiment, equity rates have been used in all calculations as the only measure of profit In the most convenient form for testing, therefore, the central hypothesis is that there will be higher average profit rates on equity in industries of high concentration than in less concentrated oligo- lies or in industries of atomistic structure. The hypothesis does not suggest the exact degree of concentration which will separate highly concentrated oligopolies from other industries; it is a purpose of this study to determine where such a line, if any, falls. Similarly, no finer distinction is tentatively drawn than between highly con- centrated and other industries, although evidences of associations which might justify finer distinctions must be sought and evaluated II. THE INDUSTRY DEFINITION, THE MEASURE OF CONCENTRATION, AND THE SELECTION OF AN INDUSTRY SAMPLE Given the hypothesis for test, we must first make explicit the definitions of certain terms it employs and see to what extent corre- 5. The assumed motive, it may be noted, is to maximize aggregate profits and not average equity rates. Higher aggregate profits, in a given demand and lower aggregate profits associated with lower prices, but not necessarily a higher equity rate if the equity-sales ratio is sufficiently lower in the low-aggregate-profit