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This paper analyzes the competitive effect of a new product introduction. We break the overall competitive effect into two parts: the effect on the prices of existing products due to increased competition, and the effect of having additional product variety. Using data from both before and after the introduction, we directly estimate the price effects and the additional variety effect. Then, using only the estimated post–introduction demand structure, along with an assumed model of competition, we estimate the price effects indirectly. By comparing the ‘indirect’ and ‘direct’ estimates, we assess the validity of alternative models of competition for the industry.

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