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This article introduces a novel method for assessing product indistinguishability, defined as how closely products approach being perfect substitutes. The method evaluates changes in product relationships when aggregated versus when maintained separately. Derived from the generalized Constant Elasticity of Substitution (genCES) function that utilizes a nesting structure, the test is applied to a dataset from a drugstore retail chain. Empirical findings demonstrate alignment with theoretical predictions, substantiating the test’s validity. Additionally, the study opens up new avenues for future research aimed at enhancing the test’s efficacy. These include further exploration of the theoretical underpinnings of genCES functions and the development of a more nuanced measure of product relationships that integrates the strengths of elasticity of substitution and cross-price elasticity.

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Toward a New Measure of Product Indistinguishability Based on Changing Relationships with Other Products

  • 会议论文

  • 发表日期：

    2025年

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  • Petr Krautwurm

摘要

This article introduces a novel method for assessing product indistinguishability, defined as how closely products approach being perfect substitutes. The method evaluates changes in product relationships when aggregated versus when maintained separately. Derived from the generalized Constant Elasticity of Substitution (genCES) function that utilizes a nesting structure, the test is applied to a dataset from a drugstore retail chain. Empirical findings demonstrate alignment with theoretical predictions, substantiating the test’s validity. Additionally, the study opens up new avenues for future research aimed at enhancing the test’s efficacy. These include further exploration of the theoretical underpinnings of genCES functions and the development of a more nuanced measure of product relationships that integrates the strengths of elasticity of substitution and cross-price elasticity.