When is the Price Cost Margin a Safe Way to Measure Changes in Competition?

Jan Boone, Jan van Ours and Henry Wiel

De Economist, 2013, vol. 161, issue 1, 45-67

Abstract: The price cost margin (PCM) is a popular way to measure competition. Although we know that this measure is not without problems, we actually do not know how often and under which conditions a change in PCM points in the wrong direction. We use a new competition measure, the profit elasticity, which is more robust than PCM. Our empirical analysis based on Dutch data shows that when competition changes the probability that PCM points in the wrong direction increases with industry concentration. Copyright Springer Science+Business Media New York 2013

Keywords: Competition; Profit elasticity; Price cost margin; Measures of competition; Concentration; D43; L13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (25)

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DOI: 10.1007/s10645-012-9196-7

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