Product line competition and ICT investments

In this paper, we study strategic product line designs under duopoly. While the availability of a rich variety of products may attract consumers, it may also lead to confusion in the purchase decision-making process resulting in consumer dissatisfaction. Firms are thus motivated to offer their products with ICT tools in order to supply consumers with sufficient communication about them. We present a simple game theoretic model to analyze the impact on product line decisions of the cost of developing these tools, which may even be affected even by the rival's product line. We show that the ICT progress in solving consumers' confusion due to a firm's own products enlarges the profit gap between asymmetric firms. In contrast, it is shown that the ICT progress in solving consumers' confusion arising from a comparison with the rival's products reduces the profit gap between them. The cost asymmetry between two firms makes both of these opposite effects more robust.