A New Way to Measure Competition

Jan Boone
2004 Social Science Research Network  
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 more robust theoretically than the price cost margin. This allows for an empirical test of the problems associated with the price cost margin as a measure of
more » ... s a measure of competition. JEL codes: D43, L13 . I would like to thank Michelle Goeree for her comments. Financial support from NWO, KNAW and VSNU through a Vernieuwingsimpuls grant is gratefully acknowledged.
doi:10.2139/ssrn.557821 fatcat:wppnxuvurfcd7mbqatcbabc6bi