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A New Way to Measure Competition

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  • Boone, Jan

Abstract

This Paper 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 theoretically more robust 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.

Suggested Citation

  • Boone, Jan, 2004. "A New Way to Measure Competition," CEPR Discussion Papers 4330, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4330
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    More about this item

    Keywords

    competition; measures of competition; price cost margin; variable profits;
    All these keywords.

    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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