Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium

Jacob A. Bikker; Sherrill Shaffer; Laura Spierdijk

doi:10.1162/rest_a_00210

Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium

Jacob A. Bikker^1,2; Sherrill Shaffer^3,4,5,6; Laura Spierdijk⁷

¹ Utrecht University · ² De Nederlandsche Bank · ³ Australian National University · ⁴ University of Wyoming · ⁵ National University · ⁶ Wyoming Department of Education · ⁷ University of Groningen

The Review of Economics and Statistics 2012 open access

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.

DOI: 10.1162/rest_a_00210
Volume: 94 (4)
Pages: 1025-1044
Language: en
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Sources: crossref openalex