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Customer Overlap and Diversion Ratios

Author

Listed:
  • Liran Einav
  • Mariana D. Guido
  • Peter J. Klenow

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.

Suggested Citation

  • Liran Einav & Mariana D. Guido & Peter J. Klenow, 2026. "Customer Overlap and Diversion Ratios," NBER Working Papers 34693, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34693
    Note: IO LE
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    More about this item

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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