When is the price cost margin a safe way to measure changes in competition?

J. Boone; J.C. van Ours; H.P. van der Wiel

doi:10.1007/s10645-012-9196-7

When is the price cost margin a safe way to measure changes in competition?

J. Boone, J.C. van Ours, H.P. van der Wiel

Research output: Contribution to journal › Article › Scientific › peer-review

20 Citations (Scopus)

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.

Original language	English
Pages (from-to)	45-67
Journal	Economist-Netherlands
Volume	161
Issue number	1
DOIs	https://doi.org/10.1007/s10645-012-9196-7
Publication status	Published - 2013

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10.1007/s10645-012-9196-7

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@article{cb1439aca26f44a3a71b351012a3f3b7,

title = "When is the price cost margin a safe way to measure changes in competition?",

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.",

author = "J. Boone and {van Ours}, J.C. and {van der Wiel}, H.P.",

year = "2013",

doi = "10.1007/s10645-012-9196-7",

language = "English",

volume = "161",

pages = "45--67",

journal = "Economist-Netherlands",

issn = "0013-063X",