The Purposes of this study are to investigate the relationship between market structure and performance in Korea. Majority of the study using developed countries' data show that concentration ratio and industry profit rate are positively correlated. There exist two views in interpreting this relationship namely Collusion Hypothesis. Collusion hypothesis explains this phenominon as follows. In highly concentrated Industry, a few firms are likely to collude with each other explicitly. This enables them to price their products above competitive level and reap monopoly profits. But efficiency hypothesis explains that in highly concentrated industry only a few efficient firms survive. Therefore, they earn a higher profits not because they collude, but because they are efficient.
In Korea, however significant positive correlation were not found. In view of collusion and efficiency hypothesis, there can be three possible explainations to interprete this special relationship.
First, concentration ratio is not a valid measure of collusion among a few firms.
Second, Concentration ratio can not reflect the relative efficiency of large firms.
Third, In Korea, profit rates are largely determined by factors other than collusion and efficiency.
To clarify such possibilities, efficiency variables such as cost disadvantage ratio and scale efficiency variables are used to compare its relative effects on profit rates with those of collusion measures.
The main results of thesis study are as follows.
1. There is no significantly positive correlation between an industry's collusion measures and its profits.
2. Concentration ratio does not reflect the relative efficiency of large firms.
3. In an industry where large firms are more efficient than small and large firms earn a higher profits. A direct measures of scale efficiency is found to be positively correlated with large firms' profits.
