Empiricism Meets Theory: Is the Boone-Indicator Applicable?

Alexander Schiersch and Jens Schmidt-Ehmcke

No 1030, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) with superior theoretical properties. However, the empirical applicability and robust-ness of the Boone-Indicator is still unknown. This paper aims to address that question. Using a rich, newly built, data set for German manufacturing enterprises, we test the empirical valid-ity of the Boone-Indicator using cartel cases. Our analysis reveals that the traditional regres-sion approach of the indicator fails to correctly indicate competition. A proposed augmented indicator based on RPDs performs better. The traditional Lerner-Index is still the only meas-ure that correctly indicates the expected competitive changes.

Keywords: Competition; Boone-Indicator; Cartels; Census Data (search for similar items in EconPapers)
JEL-codes: D43 L12 L41 (search for similar items in EconPapers)
Pages: 28 p.
Date: 2010
New Economics Papers: this item is included in nep-com and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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