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A measure of price advantage and its decomposition into output- and input-specific effects
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In this paper, we develop a price advantage measure obtained as the difference between efficiency scores computed with quantity-based and value-based data. This measure is interpreted as an increase in the firm's profit rate due to a favourable input and output price environment. Compared to traditional allocative efficiency measure, which uses only the evaluated firm's prices, price advantage measure considers prices of peers in the market. Our main contribution is to show that total-price advantage decomposes into the sum of output- and input-specific price advantages. The application of the measure to a French farm's dataset in the context of the successive common agricultural policy reforms – aiming at the liberalization of agricultural prices (1992–2013) – illustrates our theoretical model.
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