Market segmentation index

Market Segmentation Index

Market Segmentation Index or Celli Index of Market Segmentation, named after the Italian economist Celli G. GianLuca, is a measure of market segmentation. The degree of market segmentation is defined as the degree of monopoly power of the producing firm or exporting country. Higher is the average unit value (AUV) of the same product sold in the primary market compared to the benchmark market, greater is the degree of monopoly power in the primary market and therefore higher is the degree of market segmentation.

Pp/Ps = C , p ≠ s (1)

Pp and Ps are respectively the prices the producing country sets in the primary market (primary market or market of interest) Mp and the secondary market (benchmark) Ms, C is the Market Segmentation Index (MSI), which measures the degree of segmentation of the producing country in the two markets. The MSI was extrapolated from the Learner Index of market power in the form L=(P-MC)/P in the case of multiple market segments.

Proposition 1.

If C > 1 then a monopolist country has an higher degree of monopoly power in segment Mp than segment Ms
and therefore this country has a greater incentive to specialize in Mp.

Proposition 2.

If C < 1 then a monopolist country has an lower degree of monopoly power in segment Mp than 
segment  Ms  and therefore this country has a greater incentive to specialize in Ms.

Proposition 3.

If C ≈ 1 then a monopolist country experience no difference in the degree of monopoly power 
between segment Mp and segment  Ms and therefore this country has no monopolistic incentive to specialize 
in either markets. 

From Learner Index to Market Segmentation Index (MSI)

Assumption 1: Marginal costs for the monopolist firm are the same for every market segment

Applying Lerner index L=(P-MC)/P to two distinctive market segments we get the degree of monopoly power in market segment Ms as Ls=(Ps-MC)/Ps and Mp as Lp=(Pp-MC)/Pp. Ps is the price charged in Ms while Pp is the price charged in Mp. From this follows that:

Mc= PpLp-Pp>PsLs-Ps

Pp(Lp-1)>Ps(Ls-1)

Pp/Ps>Ls-1/Lp-1

with l=L-1

Pp/Ps>ls/lp = C

Proof:

If Pp>Ps

Pp/Ps>1 → ls/lp<1

Ls-1 < Lp-1

Ls<Lp

This result confirms the validity of the Market Segmentation Index, which is a comparative measure of the degree of monopoly power in two distinctive markets for products that have the same marginal costs. The result says that when the price in the primary market is strictly greater than the price in the secondary market then the Lerner’s Index is higher in the primary market and therefore the Market Segmentation Index would also be higher for the primary market.