Empiricism Meets Theory: Is the Boone-Indicator Applicable?

30 Pages Posted: 17 Jul 2010

See all articles by Alexander Schiersch

Alexander Schiersch

German Institute for Economic Research (DIW Berlin)

Jens Schmidt-Ehmcke

German Institute for Economic Research (DIW Berlin)

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

Schiersch, Alexander and Schmidt-Ehmcke, Jens, Empiricism Meets Theory: Is the Boone-Indicator Applicable? (July 2010). DIW Berlin Discussion Paper No. 1030, Available at SSRN: https://ssrn.com/abstract=1641034 or http://dx.doi.org/10.2139/ssrn.1641034

Alexander Schiersch (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Jens Schmidt-Ehmcke

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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