Product variety and market structure: A new measure and a simple test

The relationship between market structure and product variety is critical, since too few or too many products may be produced given a particular market structure. This paper measures empirically the relationship between structure and variety in the music recording industry. Entropy is used to generate a measure of product variety. The results suggest that the relationship is nonmonotonic: high and low levels of concentration result in lessened variety, and maximum variety is promoted by a moderately concentrated structure.