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A New Way to Measure Competition

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  • Jan Boone

Abstract

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.

Suggested Citation

  • Jan Boone, 2008. "A New Way to Measure Competition," Economic Journal, Royal Economic Society, vol. 118(531), pages 1245-1261, August.
    • Handle: RePEc:ecj:econjl:v:118:y:2008:i:531:p:1245-1261
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    References listed on IDEAS

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    1. Tor Jakob Klette, 1999. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Journal of Industrial Economics, Wiley Blackwell, vol. 47(4), pages 451-476, December.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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