Consumer Search and Product Line Length: The Role of the Consumer-Product Fit Distribution

More intense consumer search across firms may lead to both stronger price competition and a better match between customers and products. We show that the net result of these forces may lead to either shorter or longer product lines and higher or lower prices and profits depending on the distribution of product valuations across consumers. In the case of full market participation/coverage and many firms, we provide a simple function of value distribution (and discuss its relation to the hazard rate) that can guide managers in understanding the directional impact of consumer search costs on firms’ product line length. Lower search costs lead to longer product lines if the value distribution has a nonincreasing hazard rate (e.g., Exponential or Pareto distributions) but are a force toward shorter product lines under Normal, Logistic, or Gumbel-Minimum distributions. Gumbel-Maximum is the borderline case resulting in a net zero effect. Under Uniform distribution, prices and product lines are inverted-U shaped in the search costs. We separately consider the implications of consumers’ market participation decisions for firms’ product line strategy.