Benchmarking Competition Intensity in Canada and the Us: Estimating Boone's Profit Elasticities, 1985-2005

Abstract

Numerous policy issues in Canada implicitly or explicitly rely on vigorous competition intensity. Surprisingly, as little is known about competition intensity in Canada today, as it was at the time of Macdonald Commission. In this paper, we describe and estimate a new measure of competition intensity, the Profit Elasticity Measure (PEM) proposed by Boone (2008), that has the advantage of being theoretically monotonic in competition intensity and relatively parsimonious in its data requirements. We then use these estimates to benchmark competition intensity in a number of industries in Canada and the U.S for the period 1985-2005. The comparative analysis of these measures for selected Canadian and US industries are consistent with popular qualitative perceptions about relative intensity of competition in Canada and the U.S.