The relationship between the Boone indicator and the Herfindahl-Hirschman index : evidence for the container liner shipping industry
Faculty of Applied Economics
Proceedings of WCTRS 2013, Rio de Janeiro, 15-18 July 2013 World Conference on Transport Research
University of Antwerp
The present paper focuses on the relation between the Boone indicator and the Herfindahl-Hirschman Index. Both measures of competition are employed for the container liner shipping industry. First, the paper examines a new model-based measure of competition. This measure of competition based on Boones theoretical work quantifies the impact of marginal costs on performance, measured in terms of profits or market shares. Boone (2000 and 2004) shows that when profit differences are increasingly determined by marginal cost differences, this indicates increased competition. The evolution of competition will be calculated using a pooled data set of 20 liner operators. Data availability limits the analysis to industry level for the period 2000-2008. The problem setting is that unlike other sectors, the container liner shipping industry is characterized by limited data availability. Operating expenses for the business segment container shipping are not readily available; and this is exacerbated by the economic crisis. Therefore, the paper examines whether the Herfindahl-Hirschman Index (HHI) is a good alternative measure. Based on the 2000-2008 dataset, the findings suggest that the indicators do not agree on the direction of change in competition and that the Boone indicator is the preferred tool to establish it.