Archived — Research Summaries: Working Paper 2008-01: The Robustness of International Benchmarks of Competition Intensity: The Case of Mark-ups

by Stéphane Crépeau and Jeffrey Peter

In several recent publications, the Organisation for Economic Co-operation and Development (OECD) argues that, in general, competitive forces appear to be relatively strong in Canada compared to other OECD countries. This conclusion is based on a series of imperfect proxies that attempt to measure the intensity of competition such as industrial concentration measures, import-penetration rates and relative mark-ups of industries across countries. In this paper, we review the robustness of such an international benchmarking exercise and particularly focus on mark-ups obtained from models developed by Hall (1988) and Roeger (1995). Using these models, we show the substantial and significant sensitivity of the estimated mark-ups to several underlying assumptions such as the time period and the rental price of capital. We then argue that this particular indicator of competition intensity and market power should be used with great caution in any international benchmarking exercise and that other indicators provide more robust estimates of competition intensity.

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