TY - JOUR
T1 - Full-line or specialization strategy? The negative effect of product variety on product line strategy
AU - Matsubayashi, Nobuo
AU - Ishii, Yasuaki
AU - Watanabe, Kentaro
AU - Yamada, Yoshiyasu
PY - 2009/7/16
Y1 - 2009/7/16
N2 - This paper studies the product line decisions of firms under two consumer segments differing in their quality-sensitivity. We focus on a negative impact of the product variety on the consumers' motivation to purchase, while each product is horizontally differentiated. In the presence of this impact and high fixed costs relative to variable costs, it is shown that when a highly quality-sensitive segment exists, it is always advantageous for the monopoly to specialize in only one product serving this segment. However, the appearance of a competitor can drastically change the product line in the market. Under the duopolistic setting where two firms sequentially determine their product lines, we show that the leader gains a better financial result by offering its product to the low segment for many cases, including the case where no product is offered to the high segment by either of the firms who are in equilibrium. Furthermore, we obtain another interesting result that indicates that the follower's profit can exceed the leader's profit when the quality-sensitivities between the two consumer segments are sufficiently different, even though the two firms are symmetric except for the order of their product offerings.
AB - This paper studies the product line decisions of firms under two consumer segments differing in their quality-sensitivity. We focus on a negative impact of the product variety on the consumers' motivation to purchase, while each product is horizontally differentiated. In the presence of this impact and high fixed costs relative to variable costs, it is shown that when a highly quality-sensitive segment exists, it is always advantageous for the monopoly to specialize in only one product serving this segment. However, the appearance of a competitor can drastically change the product line in the market. Under the duopolistic setting where two firms sequentially determine their product lines, we show that the leader gains a better financial result by offering its product to the low segment for many cases, including the case where no product is offered to the high segment by either of the firms who are in equilibrium. Furthermore, we obtain another interesting result that indicates that the follower's profit can exceed the leader's profit when the quality-sensitivities between the two consumer segments are sufficiently different, even though the two firms are symmetric except for the order of their product offerings.
KW - Follower advantage
KW - Game theory
KW - Marketing
KW - Negative externality arising from product variety
KW - Product line strategy
UR - http://www.scopus.com/inward/record.url?scp=58149214105&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=58149214105&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2008.03.034
DO - 10.1016/j.ejor.2008.03.034
M3 - Article
AN - SCOPUS:58149214105
VL - 196
SP - 795
EP - 807
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 2
ER -