December 16, 2010

Measuring competition using the Profit Elasticity: American Sugar Industry, 1890-1914

The Profit Elasticity (PE) is a new competition measure introduced in Boone (2008). So far, there was no direct proof that this measure can identify regimes of competition empirically.

We focus on this issue using data of Genesove and Mullin (1998), in which different regimes of competition are identified. We derive a version of PE suitable for this data set. The new competition measure classifies the monopoly/cartel regime correctly as being less competitive than both the price-war regime and break-up of cartel regime.


Michiel van Leuvensteijn