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The Boone-indicator: Identifying different regimes of competition for the American Sugar Refining Company 1890-1914

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  • Michiel van Leuvensteijn

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Abstract

Boone (2008) introduces a new theory based measure of competition, the so-called Boone-indicator. The indicator is based on the relationship between performance, in terms of profits, and efficiency, measured as marginal costs. Whether the indicator is able to correctly measure competition in practice is an unanswered question yet. In this paper, I provide empirical evidence that the Boone-indicator appropriately is measuring levels of competition. To this purpose, I follow a seminal paper by Genesove and Mullin (1998) where they show that the elasticity-adjusted Lerner index is able to identify regimes of price wars from nonprice wars by comparing the outcomes of this index with independent reports on the regimes of competition for the American sugar industry for the period 1890-1914. Using their data, I construct a proxy for profits. I calculate both the elasticity-adjusted Lerner index as the Boone-indicator for a single firm, the American Sugar Refining Company. Using the same data, I am able to demonstrate empirically that the Boone-indicator is better able to identify the different regimes of competition than the elasticity-adjusted Lerner index. The Boone-indicator, therefore, adds value to the insights provided by the elasticity-adjusted Lerner index. Several robustness checks are performed that show that the results are insensitive for alterations in the profit proxy.

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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 08-37.

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Length: 37 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:use:tkiwps:0837

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Keywords: competition; measures of competition; sugar industry;

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References

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  1. David Genesove & Wallace P. Mullin, 2006. "Predation and its rate of return: the sugar industry, 1887–1914," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 47-69, 03.
  2. Boone, J., 2004. "A New Way to Measure Competition," Discussion Paper 2004-31, Tilburg University, Center for Economic Research.
  3. Rabah Amir, 2000. "Market Structure, Scale Economies and Industry Performance," Discussion Papers 00-08, University of Copenhagen. Department of Economics.
  4. Boone, J., 2000. "Competition," Discussion Paper 2000-104, Tilburg University, Center for Economic Research.
  5. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Graddy, K., 1993. "Testing for Imperfect Competition at the Fulton Fish Market," Papers 137, Princeton, Department of Economics - Financial Research Center.
  7. Corts, Kenneth S., 1998. "Conduct parameters and the measurement of market power," Journal of Econometrics, Elsevier, vol. 88(2), pages 227-250, November.
  8. J. A. Bikker & M. van Leuvensteijn, 2008. "Competition and efficiency in the Dutch life insurance industry," Applied Economics, Taylor & Francis Journals, vol. 40(16), pages 2063-2084.
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Cited by:
  1. Bing Xu & Adrian Van Rixtel & Michiel Van Leuvensteijn, 2013. "Measuring bank competition in China: a comparison of new versus conventional approaches applied to loan markets," BIS Working Papers 422, Bank for International Settlements.

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