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Product-Line Length as a Competitive Tool

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  • Michaela Draganska
  • Dipak C. Jain

Abstract

The increasing number of consumer goods and services offered in recent years suggests that product-line extensions have become a favored strategy of product managers. A larger assortment, it is often argued, keeps customers loyal and allows firms to charge higher prices. There is disagreement, however, about the extent to which a longer product line translates into higher profits. We develop an econometric model derived from a game-theoretic perspective that explicitly considers firms' use of product-line length as a competitive tool. On the demand side, we analytically establish the link between consumer choice and the length of the product line. Based on our derivations, we include a measure of line length in the utility function to investigate consumer preference for variety using a brand-level discrete-choice model. The supply side is characterized by price and line length competition between oligopolistic firms. For the empirical analysis we use market-level data for the yogurt category. We find that there are decreasing returns to product-line length. Based on a series of "what-if" experiments, we derive recommendations for effective product line decisions in a competitive environment. Copyright Blackwell Publishing 2005.

Suggested Citation

  • Michaela Draganska & Dipak C. Jain, 2005. "Product-Line Length as a Competitive Tool," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 1-28, March.
  • Handle: RePEc:bla:jemstr:v:14:y:2005:i:1:p:1-28
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