Year: 2026
Type: report
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. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
DOI: 10.3386/w34693
Authors: Liran Einav, Mariana Guido, Peter Klenow
Institutions: National Bureau of Economic Research, Stanford University
Language: English
Subfield: Marketing
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7124926292