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Empiricism Meets Theory: Is the Boone-Indicator Applicable?

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Author Info

  • Alexander Schiersch
  • Jens Schmidt-Ehmcke

Abstract

Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) with superior theoretical properties. However, the empirical applicability and robust-ness of the Boone-Indicator is still unknown. This paper aims to address that question. Using a rich, newly built, data set for German manufacturing enterprises, we test the empirical valid-ity of the Boone-Indicator using cartel cases. Our analysis reveals that the traditional regres-sion approach of the indicator fails to correctly indicate competition. A proposed augmented indicator based on RPDs performs better. The traditional Lerner-Index is still the only meas-ure that correctly indicates the expected competitive changes.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.358332.de/dp1030.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1030.

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Length: 28 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1030

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Related research

Keywords: Competition; Boone-Indicator; Cartels; Census Data;

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References

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  1. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  2. Léopold Simar & Paul Wilson, 2000. "Statistical Inference in Nonparametric Frontier Models: The State of the Art," Journal of Productivity Analysis, Springer, vol. 13(1), pages 49-78, January.
  3. Anca Pruteanu-Podpiera & Laurent Weill & Franziska Schobert, 2007. "Market Power and Efficiency in the Czech Banking Sector," Working Papers 2007/6, Czech National Bank, Research Department.
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Cited by:
  1. Amador, João & Soares, Ana Cristina, 2013. "Competition in the Portuguese economy: insights from a profit elasticity approach," Working Paper Series 1603, European Central Bank.
  2. João Amador & Ana Cristina Soares, 2012. "Measuring competition in the Portuguese economy using profit elasticities," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  3. Brissimis, Sophocles & Delis, Mannthos & Iosifidi, Maria, 2012. "Bank market power and monetary policy transmission," MPRA Paper 49206, University Library of Munich, Germany.
  4. Doan, Tinh, 2011. "Evolution of competition in Vietnam industries over the recent economic transition," MPRA Paper 34254, University Library of Munich, Germany.
  5. Phil Molyneux & Hong Liu & John O.S. Wilson, 2010. "Measuring Competition and Stability: Recent Evidence for European Banking," Working Papers 10020, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  6. Preißler-Jebe, Jan Hendrik & von Blanckenburg, Korbinian & Geist, Alexander, 2010. "Comparing cartel behavior: A simulation analysis with the System of Cartel Markers (SCM)," CAWM Discussion Papers 41, Center of Applied Economic Research Münster (CAWM), University of Münster.
  7. Delis, Manthos D & Kokas, Sotiris, 2014. "Foreign ownership and market power in banking: Evidence from a world sample," MPRA Paper 53957, University Library of Munich, Germany.
  8. Olszak, Małgorzata & Świtała, Filip & Kowalska, Iwona, 2013. "Competition in commercial banks in Poland – analysis of Panzar-Rosse H-statistics," MPRA Paper 53782, University Library of Munich, Germany.
  9. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers 15, The Research Institute of the Finnish Economy.

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