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A note on Shannon’s entropy as an index of product variety

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  • Straathof, Bas

    (MERIT)

Abstract

This note shows that the antilog of Shannon’s entropy is a suitableindex of product variety for three reasons. First, for symmetricproduct types it is equal to the number of product types. Second, disaggregationof the underlying product set always leads to an increasein measured product variety. Third, the introduction or disappearanceof a marginal type does not cause a discrete change in the variety index.These properties hold for a class of weights that includes, but isnot limited to, frequencies.

Suggested Citation

  • Straathof, Bas, 2003. "A note on Shannon’s entropy as an index of product variety," Research Memorandum 031, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:umamer:2003031
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    File URL: https://unu-merit.nl/publications/rmpdf/2003/rm2003-031.pdf
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    References listed on IDEAS

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    1. Frenken, Koen & Saviotti, Paolo P. & Trommetter, Michel, 1999. "Variety and niche creation in aircraft, helicopters, motorcycles and microcomputers," Research Policy, Elsevier, vol. 28(5), pages 469-488, June.
    2. Straathof, Bas, 2003. "Variety-robust axiomatic indices," Research Memorandum 028, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    3. Alexander, Peter J., 1997. "Product variety and market structure: A new measure and a simple test," Journal of Economic Behavior & Organization, Elsevier, vol. 32(2), pages 207-214, February.
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    Cited by:

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