Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium

Jacob Bikker (), Sherrill Shaffer and Laura Spierdijk
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Laura Spierdijk: University of Groningen

The Review of Economics and Statistics, 2012, vol. 94, issue 4, 1025-1044

Abstract: The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium to infer the degree of competition. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample containing more than 100,000 bank-year observations on more than 17,000 banks in 63 countries during the years 1994 to 2004. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: Panzar-Rosse test; competition; scale (search for similar items in EconPapers)
JEL-codes: D40 L11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (137)

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Working Paper: Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium (2009)
Working Paper: Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium (2009)
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