294 QUARTERLY JOURNAL OF ECONOMICS I. THE CO Statement of the hypothesis to be tested involves an initial distinction among industries according to the degree of seller con- centration, recognizing(1) highly concentrated oligopolies, where a very few firms control a high proportion of industry output,(2)less ontrolled by a given number of firms is smaller but where oligopo- listic interdependence must still be presumed to exist, and (3)indus- tries of atomistic structure. The hypothesis in brief is that the average profit rate of firms in oligopolistic industries of a high concentration will tend to be significantly larger than that of firms in less concentrated oligopolies or in industries of atomistic structure. Firms in oligopolie of high seller concentration will tend to earn higher profit rates than all others. s This hypothesis is essentially developed from conven- tional price theory, and the manner of its development may be briefly traced a single firm monopolist or a group of oligopolists operating with effective express or tacit collusion should approach a conventional maximization solution and realize in long-run equilibrium the maxi- mum excess profit aggregate which is permitted by the relation of the industry demand curve to the costs of production and selling and by the conditions of entry 7 Sellers in industries of atomistic structure, or oligopolists who cannot reach or maintain fully effective collusion will not tend to maximize this excess profit aggregate, and 4. Before examining the hypothesis to be tested, let us note that the size of the profit rate for a firm or industry should not be regarded as a sole or an fallible index of the workability of competition. Clearly it is one of sever dimensions of market performance which must be interpreted as a complex in evaluating the workability of competition. Low or normal profits are ordinarily associated with certain model types of competitive equilibrium, and profits chronically much in excess of some normal rate with undesirable restriction of output and adverse income distribution effects. But the existence of a low profit te may be associated with adverse results on other levels(such as chronic excess apacity)and any profit performance must be read in the light of the rate echnical progress, the trend of de unable here to discover any net relation of concentration to the workability competition; we seek simply the relation of concentration to the profit rate, whatever its ultimate significane 5. The major distinction, it may be emphasized, is not between industried olies and all other industrie 6. The term excess profit is used here throughout to refer to a return luding imputed interest costs on equity capital, and no 7. The conventional maximization solution must be construed to ither one where marginal cost equals industry marginal revenue(as where blockaded or alternatively cannot be advantageously forestalled)or one