TY - JOUR
T1 - Assessing Competition with the Panzar-Rosse Model
T2 - The Role of Scale, Costs, and Equilibrium
AU - Bikker, Jacob A.
AU - Shaffer, Sherrill
AU - Spierdijk, Laura
PY - 2012
Y1 - 2012
N2 - 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.
AB - 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.
U2 - 10.1162/REST_a_00210
DO - 10.1162/REST_a_00210
M3 - Article
SN - 0034-6535
VL - 94
SP - 1025
EP - 1044
JO - The Review of Economics and Statistics
JF - The Review of Economics and Statistics
ER -