A New Way to Measure Competition

Boone, Jan

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A New Way to Measure Competition

37 Pages Posted: 4 May 2004

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

There are 2 versions of this paper

Date Written: March 2004

Abstract

This Paper introduces a new way to measure competition based on firms' profits. Within a general model, we derive conditions under which this measure is monotone in competition, where competition can be intensified both through a fall in entry barriers and through more aggressive interaction between players. The measure is shown to be theoretically more robust than the price cost margin. This allows for an empirical test of the problems associated with the price cost margin as a measure of competition.

Keywords: Competition, measures of competition, price cost margin, variable profits

JEL Classification: D43, L13

Suggested Citation: Suggested Citation

Boone, Jan, A New Way to Measure Competition (March 2004). Available at SSRN: https://ssrn.com/abstract=539803