Empirical Properties of Diversion Ratios

Christopher Conlon and Julie Mortimer

No 24816, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The diversion ratio for products j and k can be interpreted as the result of an experiment: increase the price of product j, measure the number of consumers who leave product j, and then measure the fraction of leavers who switch to a substitute product k. In theory, this is expressed as the ratio of demand derivatives that enter the multi-product Bertrand-Nash first-order condition for a firm. In practice, diversion ratios are also measured from second-choice data or customer switching surveys. We establish a LATE interpretation of diversion ratios, and show how diversion ratios can be obtained from different interventions (price changes, quality changes, assortment changes) and how those different measures relate to one another and to the underlying properties of demand.

JEL-codes: L0 L1 L4 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-com and nep-ind
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Published as Christopher Conlon & Julie Holland Mortimer, 2021. "Empirical properties of diversion ratios," The RAND Journal of Economics, vol 52(4), pages 693-726.

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Related works:
Journal Article: Empirical properties of diversion ratios (2021)
Working Paper: Empirical Properties of Diversion Ratios (2019)
Working Paper: Empirical Properties of Diversion Ratios (2018)
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