Henry van der Wiel

How (Not) to Measure Competition

We introduce a new measure of competition: the elasticity of a firms profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competition. Using firm-level data we compare PE with the most popular competition measures such as the price cost margin (PCM). We show that PE and PCM are highly correlated on average. However, PCM tends to misrepresent the development of competition over time in markets with few firms and high concentration, i.e. in markets with high policy relevance. So, just when it is needed the most PCM fails whereas PE does not. From this we conclude that PE is a more reliable measure of competition.

Ict, Innovation and Business Performance in Services: Evidence for Germany and the Netherlands

Using panel data for German and Dutch firms from the services sector, this paper analyses the importance of ICT capital deepening and innovation for productivity. We employ a model that takes into account that innovation and ICT use may be complementary. The results show that the contribution of ICT capital deepening is raised when firms combine ICT use and technological innovations on a more permanent basis. Moreover, the joint impact of ICT use and permanent technological innovation on productivity appears to be of the same order of magnitude in the two countries. However, the direct impacts of innovation on multi-factor productivity seems to be more robust for Germany than for the Netherlands.

Market structure, productivity and scale in European business services

Using data from 11 EU countries, the paper investigates the impact of scale economies on labour productivity in European business services. Moreover, it analyses whether the incidence of scale sub-optimality is related to characteristics of the market or to national regulation characteristics. The econometric analysis is based on a production function model in combination with a distance-to-the-frontier model. We find evidence for the existence of increasing returns to scale in business services firms. A result is that throughout the EU, business-services firms with less than 20 employed persons have a significantly lower level of labour productivity than the rest of the business-services industry. Two factors explain the scale inefficiencies. The first is the level of policy-caused firm-entry costs; higher start-up costs for new firms go along with more scale inefficiency. Secondly, business-services markets tend to be segmented by firm size: firms tend to compete predominantly with firms in their own size segment of the markets. Scale-related inefficiencies are to some extent compensated by more competition within a firms own size segment. If a firm operates in a more “crowded” segment this has a significant and positive impact on its labour productivity. We derive some policy implications from our findings.

Shopping With Friends Give More Fun; How Competition, Innovation and Productivity Relate in Dutch Retail Trade

This study focuses on the relation between competition, innovation and productivity in the Dutch retail trade. Everyone is very familiar with the retail trade.299 Sometimes, we do our shopping alone, now and then together with friends. But each of us has frequently or even daily contact with this part of the economy. In fact, the retail trade acts as an intermediate between producers and consumers. The industry is responsible for a considerable part of output and employment of industrialised countries, including the Netherlands. In fact, the share of nominal value added and employment was approximately 4 and 7 percent respectively in 2000 for the Netherlands.