Product Similarity and Cross-Price Elasticity

Review of Industrial Organization, 2018

Sreya Kolay and Rajeev K. Tyagi

Abstract

We use a spatial competition model to show how an increasing similarity between two products can monotonically increase, monotonically decrease, or have a non-monotonic effect on cross-price elasticity. We relate these results to prior research that links cross-price elasticity to product similarity, and the literature on market structure, merger analysis, and price discrimination.

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