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A General Concentration Index for Multiproduct Firms with Differentiated Products

Author

Listed:
  • Christopher Bailey

    (Central Michigan University)

  • Samuel Raisanen

    (Central Michigan University)

Abstract

Economists commonly use the Herfindahl-Hirschman Index (HHI) to measure the competitiveness of markets. However, the HHI has two significant problems. First, defining the market boundaries can be arbitrary. Second, the products included in the defined market are effectively assumed to be homogeneous. This paper proposes a differentiated product concentration index (DPCI) that reduces these problems by weighing substitutes differentially. The DPCI mitigates the problematic effects of expanding a market definition to change the perceived degree of competition. The DPCI has many desirable properties and collapses to the HHI when products are homogeneous.

Suggested Citation

  • Christopher Bailey & Samuel Raisanen, 2015. "A General Concentration Index for Multiproduct Firms with Differentiated Products," Journal of Economic Insight, Missouri Valley Economic Association, vol. 41(2), pages 19-34.
    • Handle: RePEc:mve:journl:v:41:y:2015:i:2:p:19-34
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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