A Proposed Method for Analyzing Competition Among Differentiated Products

Abstract

Economists recognize that conventional measures of market concentration that may be appropriate when relevant products are homogeneous are inappropriate, except under very special circumstances. Meaningful analysis in a market with differentiated products must recognize the fact that all relevant products do not compete to the same degree, since the products vary in their degree of substitutability. In this article, we propose an alternative approach to analyzing competition among differentiated products. This approach examines the full structure of demand in a market by including all products of interest (rather than drawing an exclusive boundary) and then determining the competitive importance of each product by its degree of substitution with the products of the merging firms.