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.

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