IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Is the Boone-Indicator Applicable? – Evidence from a Combined Data Set of German Manufacturing Enterprises

  • Schiersch Alexander

    ()

  • Schmidt-Ehmcke Jens

    ()

    (German Institute for Economic Research, Department of Innovation, manufacturing, Service, Mohrenstraße 58, 10117 Berlin, Germany)

Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) that, from its theoretical properties, proves to be more robust than the Lerner-Index. However, the proof of the empirical practicability and robustness of the Boone-Indicator is missing. To fill this gap, we use a rich, newly built, data set for German manufacturing enterprises and test its empirical validity using cartel cases. Since all of the identified cartels significantly restricted market competition, we expect fiercer competition after the uncovering. We asses the validity of the indicators by comparing the indicated competition levels before and after the cartels were uncovered and stopped. The Boone-Indicator is calculated as RPDs and as a beta coefficient of a log-log regression. The Lerner-Index is used as a benchmark. Our analysis finds that the Boone-Indicator, based on a simple regression approach, fails to correctly indicate competition. Since the Boone-Indicator, based on pure RPDs, proves to be inapplicable, we propose an augmented indicator based on size-adjusted RPDs, which performs better. However, our findings suggest that, given the information typically available in census data, the Lerner-Index is still the only measure that correctly indicates competitive changes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.degruyter.com/view/j/jbnst.2011.231.issue-3/jbnst-2011-0304/jbnst-2011-0304.xml?format=INT
Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by De Gruyter in its journal Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik).

Volume (Year): 231 (2011)
Issue (Month): 3 (June)
Pages: 336-357

as
in new window

Handle: RePEc:jns:jbstat:v:231:y:2011:i:3:p:336-357
Contact details of provider: Web page: http://www.degruyter.com

Order Information: Web: http://www.degruyter.com/view/j/jbnst

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Boone, J., 2004. "A New Way to Measure Competition," Discussion Paper 2004-004, Tilburg University, Tilburg Law and Economic Center.
  2. Maudos, Joaquin & Fernandez de Guevara, Juan, 2006. "Banking competition, financial dependence and economic growth," MPRA Paper 15254, University Library of Munich, Germany, revised 2006.
  3. Boone, J. & van Ours, J.C. & van der Wiel, H.P., 2007. "How (Not) to Measure Competition," Discussion Paper 2007-32, Tilburg University, Center for Economic Research.
  4. Nevo, Aviv, 1998. "Measuring Market Power in the Ready-To-Eat Cereal Industry," Research Reports 25164, University of Connecticut, Food Marketing Policy Center.
  5. Korbinian Blanckenburg & Alexander Geist, 2009. "How Can a Cartel Be Detected?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(4), pages 421-436, November.
  6. Rabah Amir, 2000. "Market Structure, Scale Economies and Industry Performance," Discussion Papers 00-08, University of Copenhagen. Department of Economics.
  7. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
  8. repec:kap:iaecre:v:15:y:2009:i:4:p:421-436 is not listed on IDEAS
  9. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  10. Simar, L. & Wilson, P.W., 1999. "Statistical Inference in Nonparametric Frontier Models: the State of the Art," Papers 9904, Catholique de Louvain - Institut de statistique.
  11. Stephen Nickell, 1993. "Competition and Corporate Performance," CEP Discussion Papers dp0182, Centre for Economic Performance, LSE.
  12. Jeremy Bulow & Paul Klemperer, 1999. "Prices and the Winner's Curse," Game Theory and Information 9904003, EconWPA.
  13. Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
  14. Jan Boone, 2008. "Competition: Theoretical Parameterizations and Empirical Measures," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 587-611, December.
  15. Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
  16. 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.
  17. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
  18. 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.
  19. Chad Syverson, 2008. "Markets: Ready-Mixed Concrete," Journal of Economic Perspectives, American Economic Association, vol. 22(1), pages 217-234, Winter.
  20. BOUCHER, Jacqueline & SMEERS, Yves, 1999. "Alternative models of restructured electricity systems. Part 1: no market power," CORE Discussion Papers 1999050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:jns:jbstat:v:231:y:2011:i:3:p:336-357. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.