 THE DIVERSION STORY: RESOLVING THE AMBIGUITIES SURROUNDING THE CONCEPT OF DIVERSION RATIOAdriaan ten KateSr. and Gunnar Niels Journal of Competition Law and Economics, 2014, vol. 10, issue 2, 361-374 Abstract: Carl Shapiro introduced the diversion ratio as an analytical tool in the assessment of mergers with differentiated products, but he did so with a degree of ambiguity as to its precise definition. We show that his diversion ratio between two products (A and B) can be, and has been, interpreted in two distinct ways: first, as the fraction of customers leaving Product A that switch to Product B, and second, as the increased sales of B as a fraction of the lost sales of A. To establish a proper relationship between lost and captured profits, which is the main purpose of the diversion ratio, the first interpretation does not work. This ambiguity surrounding the concept of the diversion ratio has given rise to confusion (although algebraic elaborations in the literature are usually more precise than the language used). Practitioners relying on customer surveys to estimate diversion ratios need to be aware of the potential pitfalls when tailoring the survey questions to the incorrect definition of the ratio. JEL-codes: D11 L13 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:10:y:2014:i:2:p:361-374. Access Statistics for this article Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti More articles in Journal of Competition Law and Economics from Oxford University Press |
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