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Static profitability as a measure of deviations from the competitive norm
Author(s) -
Slade Margaret E.
Publication year - 1986
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090070207
Subject(s) - profitability index , economics , measure (data warehouse) , monopoly , oligopoly , microeconomics , index (typography) , natural monopoly , mathematical economics , rate of return , norm (philosophy) , point (geometry) , econometrics , mathematics , computer science , finance , philosophy , geometry , epistemology , database , cournot competition , world wide web
Recently, several industrial‐organization economists have claimed that the rate of return on sales (II/ S ) is superior to the rate or return on assets (II/ K ) as a measure of monopoly power. This paper argues that there is no reason to prefer one index over the other. To make the point, an oligopoly model of optimizing agents is derived that yields II/ K as a performance measure. The derivation leads to natural interpretations of the two indices and therefore to clarification of the circumstances under which each might be preferred.