Parity Product

DEFINITION of 'Parity Product'

A brand of good that has enough similarities with other brands of the same good type that it is considered readily substitutable. A parity product is functionally equivalent to a product offered by a competitor. The existence of parity products means that a monopoly does not exist. Toothpaste or contact lens solution could be considered parity products.

BREAKING DOWN 'Parity Product'

A business selling a parity product will in most cases be unable to command premium pricing because of the substitution effect. If the business raises its price while competitors do not raise theirs, consumers will buy less of its product and instead purchase competing products. In this sense, the cross elasticity of demand for the competing goods will be positive, since an increase in price of one brand's good will result in an increase in demand for another brand's good.

RELATED TERMS
  1. Parity Price

    When the price of an asset is directly linked to another price. ...
  2. Relative Purchase Power Parity

    An expansion of the purchase power parity theory, which suggests ...
  3. Uncovered Interest Rate Parity ...

    A parity condition stating that the difference in interest rates ...
  4. Parity

    1. In general, a situation of equality. Parity can occur in many ...
  5. Risk Parity

    A portfolio allocation strategy based on targeting risk levels ...
  6. Brand Management

    A function of marketing that uses techniques to increase the ...
Related Articles
  1. Managing Wealth

    Understanding Risk Parity

    Risk parity is an investment strategy that focuses on the allocation of risk across a portfolio.
  2. Markets

    What is Put-Call Parity?

    Put-call parity describes the relationship that must exist between European put and call options with the same expiration date and strike prices.
  3. Markets

    What's a Substitute?

    A substitute is a good that satisfies the same needs as another.
  4. Trading

    How to Create a Risk Parity Portfolio

    Learn about how risk parity uses leverage to create equal exposure to risk among different asset classes in portfolio construction.
  5. Trading

    Options Pricing: Put/Call Parity

    Put/call parity is an options pricing concept first identified by economist Hans Stoll in his 1969 paper "The Relation Between Put and Call Prices." It defines the relationship that must exist ...
  6. Financial Advisor

    Why These Are the Most Valuable Brands of 2015

    A company's brand can be worth billions of dollars. Here are the most valuable global brands in 2015.
  7. Markets

    Price Elasticity Of Demand

    Price elasticity of demand describes how changes in the cost of a product or service affect a company's revenue.
  8. Markets

    Well-Established Brands Worth Billions

    We look at the most valuable brands in the world, and explain what makes them successful.
  9. Personal Finance

    Understanding Product Lines

    A product line is a group of related products manufactured by the same company.
  10. Markets

    Understanding the Substitution Effect

    The substitution effect is an economic term used to describe consumer behavior relative to price or income changes.
RELATED FAQS
  1. Should a small business test the substitution effect on its products before launch?

    Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >>
  2. Why is brand equity considered an intangible asset?

    Brand equity is an intangible asset because the value of the brand is not a physical asset and is instead determined by consumer ... Read Answer >>
  3. What are some of the benefits of positive brand equity?

    Learn how having positive brand equity enables companies to make a higher margin on sales and spend less money on marketing ... Read Answer >>
  4. How important a metric is PPP (purchasing power parity?)

    Find out why calculations and comparisons of the purchasing power parity (PPP) in different countries can have a real impact ... Read Answer >>
  5. What are some of the ways that a company can improve its brand equity?

    Learn why brand equity is so valuable in business. These strategies for gaining high exposure and a great reputation will ... Read Answer >>
  6. What are the nations with the highest PPP (purchasing power parity) with respect ...

    Learn which nations have the highest PPP with respect to the U.S. while reviewing the differences of calculating GDP in market ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center