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A New Way to Measure Competition

  • Jan Boone

This article 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 competition. Copyright (C) The Author(s). Journal compilation (C) Royal Economic Society 2008.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2008.02168.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 118 (2008)
Issue (Month): 531 (08)
Pages: 1245-1261

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Handle: RePEc:ecj:econjl:v:118:y:2008:i:531:p:1245-1261
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  1. Klette, Tor Jakob, 1999. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Journal of Industrial Economics, Wiley Blackwell, vol. 47(4), pages 451-76, December.
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  8. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
  9. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
  10. Lindquist, Kjersti-Gro, 2001. "The response by the Norwegian aluminium industry to changing market structure," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 79-98, January.
  11. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
  12. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
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  14. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
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