                       EXPLANATORY TEXT

=> General

This report provides ratios on the share of industrial activity accounted
for by the largest companies, both for the United States as a whole and for
each of the 459 manufacturing industries.

The first presentation of concentration ratios in manufacturing by the
Bureau of the Census was made in 1939 and was based on the 1935 Census of
Manufactures.  Ratios for all manufacturing industries were presented in
the National Resources Committee publication, "The Structure of the
American Economy."  In the 1937 Census, concentration ratios were presented
for a large sample of individual products.  Beginning in 1947, with the
first full census following World War II, concentration ratios have been
presented as part of every Census of Manufactures.  In 1954, 1958, and
1963, the Bureau conducted the project in cooperation with the Senate
Subcommittee on Antitrust and Monopoly.  The Census Bureau has continued to
present this widely-used report in the censuses of 1967, 1972, 1977, 1982,
1987, and 1992 for the benefit of data users in the industrial,
educational, and government communities.

As in previous reports, no attempt is made to interpret the significance of
the concentration ratios.  The ratios are not used as the basis for an
analysis of either the causes or effects of concentration.  The report
consists merely of a presentation of the ratios themselves.

Through years of usage, the term "concentration ratio" has come to mean the
share of the total activity or resources of a given segment of the economy
accounted for by its largest companies.  In order to avoid disclosure of
the operations of any individual firm, the concentration ratios based on
census data are presented in groups of four companies or more, that is, the
four largest, eight largest, and so forth.

=> Concentration Ratios and the Establishment Basis of Reporting

The concentration ratios based on Census of Manufactures data have
consistently been prepared from establishment reports.  Under the
establishment system, the shipments of a given company are distributed
among all of the industries in which it has establishments.  In files
MC92CR1 and 2 of this report, which reflect the activity of the largest
companies in the industrial sector as a whole, the establishment approach
means that only the manufacturing establishments of these companies are
taken into account in determining their size.  In file MC92CR3, a company
is defined as the total of the individual establishments under one
ownership within an industry.  Consequently, the same company may appear in
several industries if it has diversified activities.

=> Concentration Ratios and the SIC System

In essence, the SIC system seeks to establish spheres of economic activity
which are unique and are distinguishable by the composite of similar
characteristics which they have in common.  These characteristics include:
similarity of products in terms of their uses, manufacturing processes,
and materials used.  The SIC system also attempts to bring together plants
which specialize in making these products and account for a significant
proportion of their total shipments, and plants which are economically
significant in terms of their number, value added by manufacture, value of
shipments, and number of employees.  The standards also largely parallel
the actual structure into which American businesses have grouped
themselves, and it is the sum of these characteristics that make it the
best single system for the largest number of uses.  In the majority of
instances, an industry is comprised of producers of similar goods or
services.  Usually, the products are made of similar materials and by
similar processes, and the producers compete with one another.

For the purpose of measuring concentration, the fact that the
classification system is not based exclusively on the usage of the product
is somewhat of a limitation, since in the economic concept of the market,
it is immaterial whether products which are substitutable for each other,
are produced by the same processes, or are made from the same materials.
In some cases, the industry and product definitions are too broad; that is,
there are products that are included in the same category which do not
serve the same function and are, thus, not substitutable for each other.
For these cases, the concentration ratios for the industry may
significantly understate the concentration in the individual product
markets.  In other cases, they are too narrow; that is, a single category
fails to include products which are substitutable - for example, metal and
glass containers.  For these cases, the concentration ratios may overstate
the concentration in the market.

Another limitation is the fact that the classification's industries and
products are regularly being redefined.  The need for redefinition arises
particularly from the introduction of new products, the declining of older
products, the introduction of new technologies, the growth of small fields
into important industries, and similar dynamic developments.  While
necessary to keep the classification system abreast of the changing nature
of the economy, an inevitable cost of redefinition is the loss of
comparability for many categories over time.

Another source of understatement of the concentration ratios is the method
in which establishments are identified.  The identification of which plants
are controlled by which companies is based on census reports and available
public records.  As part of each census, each company is sent a
questionnaire requiring them to list the plants which they operate directly
or through their subsidiaries and affiliates.  Any plant misreported as not
being controlled by a company contributes to an understatement of the
concentration for that company.

A final limitation of the concentration ratios in the domestic market is
due to the handling of imports and exports.  Products imported and sold
which require no further manufacturing, processing or assembly are
generally not included in the shipments for an industry, and thus tend to
overstate the concentration in the market.  Products manufactured in the
United States and then exported are included in the shipments for an
industry, and therefore tend to understate the concentration in the market.

=> Explanation for Files MC92CR1 and 2

These two files reflect the activity of the largest companies in the
industrial sector as a whole.  A "company" is defined, for this purpose, as
the total of its industrial establishments, including not only its
manufacturing plants, but also auxiliary establishments such as warehouses
and central administrative offices.

Concentration at this level is measured in terms of value added by
manufacture.  In these census tabulations, value added is preferable to
sales or shipments in measuring total company size, since an aggregation of
shipments from the census establishment records would contain duplication
owing to intercompany transfers of products.  Value added for all
manufacturing establishments of a given company was aggregated irrespective
of the industry classification of the individual establishments.  The
companies were then arrayed by magnitude of value added in each specific
year and totals computed for the 50, 100, and 200 largest companies.

The formula for calculating value added by manufacture for the censuses
1958 through 1992 differs from the one used for the 1954 census and earlier
years.  During the earlier period, the value added of an establishment was
calculated by subtracting the cost of materials, supplies, containers,
fuels, purchased electricity, and contract work from the value of shipments
for products manufactured plus the miscellaneous receipts for services
rendered.  This is known as "unadjusted value added" in census
publications.  Beginning with 1958, the measure of value added has been
adjusted for each establishment in two respects.  Value added now includes:

  (1) Value added by merchandising (that is, the difference between the
  sales value and cost of merchandise sold without further manufacture,
  processing, or assembly -"Resales"; and

  (2) an adjustment for the net change in finished goods and work-in-
  progress inventories between the beginning and the end of the year.  The
  resulting figure is the "adjusted value added."  Furthermore, for 1982,
  the value added by manufacture is not strictly comparable to prior
  censuses data due to a change in the instructions for reporting
  inventories.  Effective with the 1982 Economic Censuses, uniform
  instructions for reporting inventories were introduced for all sector
  reports.  Prior to 1982, respondents were permitted to value inventories
  using generally accepted accounting methods (FIFO, LIFO, market, etc.).
  In 1982, LIFO users were asked to report first the inventory values prior
  to the LIFO adjustment and, secondly, to report the LIFO reserve and
  value after adjustment for the reserve.

Thus, the ranking of the 200 largest companies in 1947 and 1954 were based
on unadjusted value added; those for later years were based on adjusted
value added.  The use of these different measures for determining size
should have little effect on the ranking and relative shares of individual
companies or on the aggregated shares of the 50, 100, 150, and 200 largest
companies in each year.

Companies were classified in size groups in each particular year based on
their size in that year.  Thus, a size group (such as the top four) does
not necessarily include the same companies from year to year.

=> Explanation for File MC92CR3

This file is based on the establishment approach described in the
introduction.  A "company" is defined as the total of the individual
establishments under one ownership within an industry.  Consequently, the
same company may appear in several industries if it has diversified
activities.  In addition, the following points should be kept in mind:

  (1) The top 4, 8, 20, and 50 companies are the largest for any particular
      year based on their value of shipments in that year and are,
      therefore, not necessarily the same companies from year to year.

  (2) For a few industries (Standard Industrial Classification codes 2011,
      2013, 2084, 3312, 3331, 3339, 3585, and 3661), Value Added by
      Manufacture rather than Value of Shipments has been used to determine
      the size of companies.  This is considered necessary for industries
      in which the aggregated Value of Shipments contains a large amount of
      duplication due to large shipments of partially-finished products
      between establishments.  An example is SIC 3312, Blast Furnaces
      (including Coke Ovens), Steel Works, and Rolling Mills, in which
      there are extensive intra-industry sales and transfers of coke oven
      and blast furnace products to finishing plants.

  (3) Ratios are shown for years prior to 1987 only if the SIC industry
      definitions were considered comparable.  There were extensive
      revisions in the SIC system in 1987 and 1972 which, in this file,
      result in suppression of data for earlier years for a substantial
      number of industries.  In general, the criteria used for judging the
      comparability of definitions was the effect of the change on the
      number of employees in the industry under the old and new
      definitions.  If the SIC change caused more than a 2 percent change,
      the historical data were suppressed.

  (4) The 1966, 1970, and 1976 concentration ratios are based on data
      developed in the Annual Survey of Manufactures.  Since the industry
      aggregates which provide the denominators in the concentration ratios
      are based on a sample, they are subject to sampling errors.  Sampling
      errors for each industry, as well as a more complete description of
      the Annual Survey of Manufactures sample are shown in the appendix.

=> Herfindahl-Hirschmann Index

The Herfindahl-Herschmann Index was shown for the first time in the 1982
Concentration Ratios in Manufacturing publication.  The concept for this
index was developed by Albert O. Hirschmann in 1945 in his book, "National
Power and Structure of Foreign Trade."  A similar index was developed by
Orris C. Herfindahl in his unpublished Ph.d dissertation, "Concentration in
the Steel Industry," at Columbia University in 1950.

The Herfindahl-Herschmann Index is a truncated index, and is calculated by
squaring the concentration ratio for each of the top 50 companies or the
entire universe (whichever is lower), and summing those squares to a
cumulative total.  The cumulative total is the Herfindahl-Herschmann Index.
This index is shown in File MC92CR3 at the four-digit industry level.

Application of the index is relatively straightforward.  The higher the
index, the more concentrated the industry group or industry is at the top.
For example, consider an industry where the concentration ratio for the top
50 companies is 100.  From the concentration ratio, it is impossible to
determine the amount accounted for by the top ranked companies.  The
Herfindahl-Herschmann Index would provide an insight to this determination.
If each of the top 50 companies accounted for 2 percentage points of the
100 percent, the index would be 200.  However, if the top ranked company
accounted for 50 percentage points, and the remaining 49 companies slightly
more than one percentage point each, the index would be 2550.
