Is the Boone-Indicator Applicable? – Evidence from a Combined Data Set of German Manufacturing Enterprises
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Alexander Schiersch
Summary
Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) that, from its theoretical properties, proves to be more robust than the Lerner-Index. However, the proof of the empirical practicability and robustness of the Boone-Indicator is missing. To fill this gap, we use a rich, newly built, data set for German manufacturing enterprises and test its empirical validity using cartel cases. Since all of the identified cartels significantly restricted market competition, we expect fiercer competition after the uncovering. We asses the validity of the indicators by comparing the indicated competition levels before and after the cartels were uncovered and stopped. The Boone-Indicator is calculated as RPDs and as a beta coefficient of a log-log regression. The Lerner-Index is used as a benchmark. Our analysis finds that the Boone-Indicator, based on a simple regression approach, fails to correctly indicate competition. Since the Boone-Indicator, based on pure RPDs, proves to be inapplicable, we propose an augmented indicator based on size-adjusted RPDs, which performs better. However, our findings suggest that, given the information typically available in census data, the Lerner-Index is still the only measure that correctly indicates competitive changes.
© 2011 by Lucius & Lucius, Stuttgart
Articles in the same Issue
- Inhalt / Contents
- Guest Editorial
- Abhandlungen / Original Papers
- Product Diversification and Profitability in German Manufacturing Firms
- Is the Boone-Indicator Applicable? – Evidence from a Combined Data Set of German Manufacturing Enterprises
- Which Parameters Determine the Development of Farm Numbers in Germany?
- Energy Use Patterns in German Industry: Evidence from Plant-level Data
- Global Warming Induced Water-Cycle Changes and Industrial Production – A Scenario Analysis for the Upper Danube River Basin
- The Economic Consequences of One-third Co-determination in German Supervisory Boards
- Buchbesprechungen / Book Reviews
Articles in the same Issue
- Inhalt / Contents
- Guest Editorial
- Abhandlungen / Original Papers
- Product Diversification and Profitability in German Manufacturing Firms
- Is the Boone-Indicator Applicable? – Evidence from a Combined Data Set of German Manufacturing Enterprises
- Which Parameters Determine the Development of Farm Numbers in Germany?
- Energy Use Patterns in German Industry: Evidence from Plant-level Data
- Global Warming Induced Water-Cycle Changes and Industrial Production – A Scenario Analysis for the Upper Danube River Basin
- The Economic Consequences of One-third Co-determination in German Supervisory Boards
- Buchbesprechungen / Book Reviews
