Measuring and analysing competition in the Netherlands

This article analyses the developments of competition between 1993 and 2001 at the industry level. Using the relative profits measure and the price-cost margin based on firm-level data, these competition indicators suggest that competition did not increase in most industries but diverged widely. This is puzzling in light of the regulatory reforms to enhance competition. An econometric analysis suggests that regulatory reforms indeed intensified competition, but also that considerable growth of market demand may have weakened competition. Finally, the two indicators often point in the opposite direction for the development of competition, because they respond differently to a reallocation of output from inefficient to efficient firms.