The most straightforward way to review my analysis is to start with what Schmalensee's results left undecided. The first major incertitude is that, although 20 percent of business-unit returns are explained by 'industry effects', we do not know how much of this 20 percent is due to stable industry effects rather than to transient phenomena. For example, in 1975 the return on assets of the passenger automobile industry was 6.9 percent and that of the corn wet milling industry was 35 percent. But this difference was far from stable: in the following year the industries virtually reversed positions, auto's return rising to 22.1 percent and corn wet milling's return falling to 11.5 percent (Federal Trade Commission, 1975, 1976). The presence of industry specific fluctuations like these adds to the variance in industry returns observed in any one year. Thus, Schmalensee's snapshot estimate of the variance of 'industry effects' is the variance among stable industry effects plus the variance of annual fluctuations. But the 'classical focus' is surely on the stable differences among industries, rather than on random year-to-year variations in those differences.