A New Way to Measure Competition
37 Pages Posted: 4 May 2004
There are 2 versions of this paper
A New Way to Measure Competition
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
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