Monday, February 7, 2011
Posted by D. Daniel Sokol
Jan Boone, Tilburg University - Center for Economic Research (CentER) and Michiel van Leuvensteijn, CPB Netherlands Bureau of Economic Policy Analysis address Measuring Competition Using the Profit Elasticity: American Sugar Industry, 1890-1914.
ABSTRACT: The Profit Elasticity (PE) is a new competition measure introduced in Boone (2008). So far, there was no direct proof that this measure can identify regimes of competition empirically. This paper focuses on this issue using data of Genesove and Mullin (1998) in which different regimes of competition are identified. We derive a version of PE suitable for this data set. This competition measure correctly classifies the monopoly/cartel regime as being less competitive than both the price war regime and break-up of cartel regime.