IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v196y2009i2p795-807.html
   My bibliography  Save this article

Full-line or specialization strategy? The negative effect of product variety on product line strategy

Author

Listed:
  • Matsubayashi, Nobuo
  • Ishii, Yasuaki
  • Watanabe, Kentaro
  • Yamada, Yoshiyasu

Abstract

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.

Suggested Citation

  • Matsubayashi, Nobuo & Ishii, Yasuaki & Watanabe, Kentaro & Yamada, Yoshiyasu, 2009. "Full-line or specialization strategy? The negative effect of product variety on product line strategy," European Journal of Operational Research, Elsevier, vol. 196(2), pages 795-807, July.
  • Handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:795-807
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00312-3
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-334, June.
    2. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-442, June.
    3. J. Miguel Villas-Boas, 2004. "Communication Strategies and Product Line Design," Marketing Science, INFORMS, vol. 23(3), pages 304-316, January.
    4. Shin-Kun Peng & Takatoshi Tabuchi, 2007. "Spatial Competition in Variety and Number of Stores," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 227-250, March.
    5. Preyas S. Desai, 2001. "Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design?," Marketing Science, INFORMS, vol. 20(3), pages 265-283, August.
    6. Matsubayashi, Nobuo, 2007. "Price and quality competition: The effect of differentiation and vertical integration," European Journal of Operational Research, Elsevier, vol. 180(2), pages 907-921, July.
    7. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    8. Kilsun Kim & Dilip Chhajed, 2002. "Product Design with Multiple Quality-Type Attributes," Management Science, INFORMS, vol. 48(11), pages 1502-1511, November.
    9. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    10. Shin-Kun Peng & Takatoshi Tabuchi, 2007. "Erratum: Spatial Competition in Variety and Number of Stores," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 537-537, June.
    11. Rajeev K. Tyagi, 2000. "Sequential Product Positioning Under Differential Costs," Management Science, INFORMS, vol. 46(7), pages 928-940, July.
    12. Sridhar Balasubramanian & Pradeep Bhardwaj, 2004. "When Not All Conflict Is Bad: Manufacturing-Marketing Conflict and Strategic Incentive Design," Management Science, INFORMS, vol. 50(4), pages 489-502, April.
    13. Rajiv D. Banker & Inder Khosla & Kingshuk K. Sinha, 1998. "Quality and Competition," Management Science, INFORMS, vol. 44(9), pages 1179-1192, September.
    14. Klemperer, Paul, 1992. "Equilibrium Product Lines: Competing Head-to-Head May Be Less Competitive," American Economic Review, American Economic Association, vol. 82(4), pages 740-755, September.
    15. Kim, Kilsun & Chhajed, Dilip, 2000. "Commonality in product design: Cost saving, valuation change and cannibalization," European Journal of Operational Research, Elsevier, vol. 125(3), pages 602-621, September.
    16. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sobhani, A. & Wahab, M.I.M. & Neumann, W.P., 2015. "Investigating work-related ill health effects in optimizing the performance of manufacturing systems," European Journal of Operational Research, Elsevier, vol. 241(3), pages 708-718.
    2. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2014. "Product variety and channel structure strategy for a retailer-Stackelberg supply chain," European Journal of Operational Research, Elsevier, vol. 233(1), pages 114-124.
    3. Lacourbe, Paul, 2012. "A model of product line design and introduction sequence with reservation utility," European Journal of Operational Research, Elsevier, vol. 220(2), pages 338-348.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:795-807. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eor .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.