Empiricism Meets Theory: Is the Boone-Indicator Applicable?
30 Pages Posted: 17 Jul 2010
Date Written: July 2010
Abstract
Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) with superior theoretical properties. However, the empirical applicability and robustness 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 validity of the Boone-Indicator using cartel cases. Our analysis reveals that the traditional regression 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 measure that correctly indicates the expected competitive changes.
Keywords: Competition, Boone-Indicator, Cartels, Census Data
JEL Classification: L12, L41, D43
Suggested Citation: Suggested Citation
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