Disaggregating the effect on profits in manufacturing industries of having imperfectly competitive consumers and suppliers

Casting the American economy as a network of economic exchange relations between firms in sectors, industries are those sectors engaged in manufacturing and are here analyzed as network positions. The structure of an industry's dollar transactions with suppliers is demonstrated to affect industry profits in a manner distinct from that in which its structure of transactions with consumers affects profits. For the 335 four-digit SIC manufacturing industries corresponding to unique sectors of the 1967 Input-Output Study, price-cost margins corrected for interindustry differences in capital requirements are regressed over four-firm concentration ratios and various structural indicators of imperfect competition among suppliers versus consumers. The structural indicators are computed from dollar flow coefficients among 492 sectors of the 1967 Input-Output Study. Only one type of product flows from an industry to its consumers, who have no trouble seeing the value of collusion despite the multiple sectors in which their own products are sold; however, products from different sectors may flow to the industry without creating the competition among suppliers that prompts collusion. Industry profits are constrained by suppliers to the extent that firms in the industry purchase supplies from few separate sectors as product markets. In contrast, industry profits are constrained by consumers to the extent that firms in the industry sell to a small number of oligopolistic sectors.