Document Type

Article

Publication Date

11-2012

Abstract

The Panzar-Rosse test has been widely applied to assess competitive conduct, often in specifications controlling for firm scale or using a price equation. We show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct. Moreover, even an unscaled revenue function generally requires additional information about costs and market equilibrium to infer the degree of competition. Our theoretical findings are confirmed by an empirical analysis of competition in banking, using a sample containing more than 100,000 bank-year observations on more than 17,000 banks in 63 countries during the years 1994 to 2004.

Publication Title

REVIEW OF ECONOMICS AND STATISTICS

DOI

10.1162/REST_a_00210

Comments

Copyright 2011 by The MIT Press (http://www.mitpressjournals.org/toc/rest/94/4).

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