Empiricism Meets Theory: Is the Boone-Indicator Applicable?

Discussion Papers 1030, 28 S.

Alexander Schiersch, Jens Schmidt-Ehmcke


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Published in: Jahrbücher für Nationalökonomie und Statistik 231(2011), 3, 336-357


Boone (2008a) proposes a new competition measure based on Relative Profit Differences (RPD) with superior theoretical properties. However, the empirical applicability and robust-ness 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 valid-ity of the Boone-Indicator using cartel cases. Our analysis reveals that the traditional regres-sion 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 meas-ure that correctly indicates the expected competitive changes.

Alexander Schiersch

Research Associate in the Firms and Markets Department

JEL-Classification: L12;L41;D43
Keywords: Competition, Boone-Indicator, Cartels, Census Data
Frei zugängliche Version: (econstor)