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 journalArticleScientificpeer-review

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 languageEnglish
Pages (from-to)45-67
JournalDe Economist
Volume161
Issue number1
DOIs
Publication statusPublished - 2013

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