DP8159 Measuring competition using the Profit Elasticity: American Sugar Industry, 1890-1914

Author(s): Jan Boone, Michiel van Leuvensteijn
Publication Date: December 2010
Keyword(s): competition, measures of competition, price cost margin, profit elasticity
JEL(s): D43, L13
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8159

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. This paper focuses 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. This competition measure correctly classifies the monopoly/cartel regime as being less competitive than both the price war regime and break-up of cartel regime.