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Measuring The Rate Of Return For Competition Law

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  • Paul A. Grout
  • Anna Zalewska

Abstract

This paper focuses on the application and interpretation of measures of rate of return for competition law. Amongst other results, we analyse how outsourcing and similar arrangements impact the rate of profitability and show that the measurement is more volatile the greater the rate of profit (suggesting that the measures are most problematic when they are most needed). We identify and interpret the outsourcing arrangements that provide the lowest rate of profit and show that these arrangements have a close relationship to net present value. Finally, we provide suggestions to make profitability measures more informative for competition law.

Suggested Citation

  • Paul A. Grout & Anna Zalewska, 2008. "Measuring The Rate Of Return For Competition Law," Journal of Competition Law and Economics, Oxford University Press, vol. 4(1), pages 155-176.
    • Handle: RePEc:oup:jcomle:v:4:y:2008:i:1:p:155-176.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhm027
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    References listed on IDEAS

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    1. van Breda, Michael F, 1984. "The Misuse of Accounting Rates of Return: Comment," American Economic Review, American Economic Association, vol. 74(3), pages 507-508, June.
    2. Gual, Jordi & Hellwig, Martin & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82 - Report by the European Advisory Group on Competition Policy," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 82, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Grout, P.A.Paul A. & Jenkins, Andrew & Zalewska, Anna, 2004. "Privatisation of utilities and the asset value problem," European Economic Review, Elsevier, vol. 48(4), pages 927-941, August.
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    5. Megginson, William Leon, 2005. "The Financial Economics of Privatization," OUP Catalogue, Oxford University Press, number 9780195150629.
    6. Martin, Stephen, 1984. "The Misuse of Accounting Rates of Return: Comment," American Economic Review, American Economic Association, vol. 74(3), pages 501-506, June.
    7. Long, William F & Ravenscraft, David J, 1984. "The Misuse of Accounting Rates of Return: Comment," American Economic Review, American Economic Association, vol. 74(3), pages 494-500, June.
    8. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
    9. Horowitz, Ira, 1984. "The Misuse of Accounting Rates of Return: Comment," American Economic Review, American Economic Association, vol. 74(3), pages 492-493, June.
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    11. Gual, Jordi & Hellwig, Martin F. & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82," Discussion Papers in Economics 745, University of Munich, Department of Economics.
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    Cited by:

    1. Johannes Paha, 2012. "Using accounting data in cartel damage calculations: blessing or menace?," European Journal of Law and Economics, Springer, vol. 34(2), pages 241-263, October.

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