Implications of Market Structure for Elasticity Structure

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Abstract
Though considerable attention has been given to market structure, little research has been done on the relationship between market structure and elasticity structure. The authors develop and partially test the aggregate constant ratio elasticity pattern (ACREP), a parsimonious marketing mix elasticity model that describes the elasticity structure of submarkets characterized by a proportional-draw market share mechanism. An analysis of the brand price elasticities in nine markets (covering six product categories) suggests that the ACREP model is a robust approach for predicting the elasticity structure of submarkets within a nondurable product class. The underlying ACREP parameters, measuring consumer propensity to switch within and between submarkets, show systematic relationships with structural characteristics of the product markets.