A Lorenz–Pareto measure of pure diversification

Several diversification and concentration measures have been proposed. These measures play an important role in both research and practice in the fields of strategic management, industrial economics, antitrust regulation, and organizational studies. Two problems with popular existing measures are their inappropriate performance on a benchmark example of the industrial organization literature and their lack of normalization into the unit interval. This note proposes a measure that overcomes these deficiencies. A distinction is drawn between two separate dimensions of diversification that we call scope and pure diversification, respectively. We call attention to how such pure measures can be recombined with scope for the construction of special purpose multiattribute indices. Our proposed measure is simply related to the well-known Gini Index, but is entirely novel. A convenient relationship to Pareto's Principle permits flexible description and interpretation.