Do Markets Differ Much? By RIChARD SChmALenSEe This essay reports the results of a cross- easily support full-blown structural estima section study of differences in accounting tion One can view the sort of search for profitability that sheds light on some basic stylized facts conducted here as either a re- controversies in industrial economics. Most placement for or an input to interindustry cross-section studies in this field structural estimation, depending have been concerned with testing hypotheses feeling about the long- run potential of that about structural coefficients in models meant research approach. This study also departs to apply to essentially all markets. As we from much of the cross-section literature by have learned more about the difficulties of being fundamentally concerned with the im- nstructing such general models and of per- portance of various effects, not just with forming tests on their structural parameters coefficient signs and t-statistics erly, structural cross-section analysis has In particular, this essay provides estimates out of fashion. In contrast to most of of the relative importance of firm, market, the cross-section literature, the analysis re- and market share differences in the de ported here is fundamentally descriptive; it termination of business unit ( divisional) does not attempt directly to estimate or profitability in U.S. manufacturing. Using test hypotheses about structural parameter 1975 data from the line of business pro- hope to show by example that one can gram of the U.s. Federal Trade Commission perform illuminating analysis of cross-sec- (FTC), I find support neither for the ex tion data without a host of controversial istence of firm effects nor for the importance maintained hypotheses. Cross-section data of market share effects. Moreover, while in an yield interesting stylized facts to guide dustry effects apparently exist and are im- both general theorizing and empirical anal portant, they appear to be negatively corre sis of specific industries, even if they cannot lated with seller concentration in these data Section I relates firm, market, and share ffects to current issues and controversies in industrial economics and thus supplies the Sloan School of Management, Massachusetts In stitute of Technology. motivation for our empirical analysis. The indebted to Stephen Postrel for excellent research assis remainder of the essay treats the data and ance to the FtCs Line of Bus taff, particularly statistical methods employed(Section II), the David Lean, William Long, and David Ravenscraft, for empirical results obtained (Section Im), and the main implications of those results (Sec chard Caves, Jerry Hausman, Paul Jos tion I luable advice. Seminar audiences at Stanford, Berke Chicago, Northwestern, and British Columbia pro I. Sources of Profitability Differences ided useful comments on earlier versions of this essa am grateful for financial support from the In the classical tradition, following Joe National Science Foundation, the U.S. Federal Trade Bain(1951, 1956), industrial economists grant to MIT). The representations and conclusior treated the industry or market as the unit of presented herein are my own and have not been adopted whole or in part by the FTC or its Bureau of onomics.The Manager of the Line of Business Pro- gram has certified that he has reviewed and approved ms(1980)has expressed a similar the disclosure avoidance procedures used by the staff of the Line of busines to ensure that the data ach taken by Michael gort and ra included in this paper do not identify individual com- Singamsetti (1976)is close in some espects to th Line of Business data. I alone can be held respon- taken here. They use firm-level data, howeve ible for this papers contents ain very different result 341