This paper analyses the relationship between the selected measures of competition and the actual intensity of the interaction in the product market under the presence of market frictions. The first part of the study compares the industry-level price-cost margin and profit elasticity within a model of monopolistic competition where the degree of substitutability among the product varieties is the determinant of the level of firm-to-firm interaction. The second part studies the empirical performances of the indices through a panel of manufacturing firms operating in Ukraine during 2004-2007. Particular attention is devoted on the method of the profit elasticity. However, this paper deviates from the literature by developing an alternative approach to measure the elasticity of profits to productivity that relies on the structural estimation of the industry production functions. The estimation methodology takes into account the unobservable prices at the firm level by introducing the demand side, and retrieves elasticity of substitution estimates jointly with the TFP. The findings imply that while the proposed method provides a robust measure, the price-cost margin and the traditional profit elasticity fail to indicate the true level of competition especially when the intensity of interaction among the firms is relatively low.