An Index Approach to Measuring Product Differentiation: A Hedonic Analysis of Airfares

The main objective of this paper is to introduce an Allen-type index differentiation based on cost functions. With index, we create economic measure product that quantifies differences between products. Applied research has some generally accepted measures, for example, the Herfindahl–Hirschman Index market concentration, or Gini coefficient inequality. Product differentiation, however, does not yet have established measure. Our fill gap and a can be used in market-related applied such as power, antitrust, price indexes, strategy. To operationalize concept core use functions degree from product. demonstrate study effect formation airline industry using enhanced hedonic model. model empirically tested 103,980 observations quarterly US domestic airfare data 2002 2016 shows significant both mark-up.