Customer Overlap and Diversion Ratios

Liran Einav, Mariana D. Guido and Peter J. Klenow

No 34693, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We define the concept of customer overlap of product j with product k as the share of j's customers who buy k. We then argue that, in appropriate contexts, customer overlaps are an excellent proxy for diversion ratios, a useful and popular way to summarize competition between sellers of substitute products. Unlike diversion ratios, which are often challenging to estimate, customer overlaps are straightforwardly observed in many data sets. We show theoretically, and then validate empirically, the close connection between customer overlaps and diversion ratios. We then illustrate the potential use of customer overlap in contexts where estimation of diversion ratios could be prohibitive.

JEL-codes: L40 L44 (search for similar items in EconPapers)
Date: 2026-01
Note: IO LE
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