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Managing Product Variety and Collocation in a Competitive Environment: An Empirical Investigation of Consumer Electronics Retailing

  • Charlotte R. Ren


    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Ye Hu


    (Bauer College of Business, University of Houston, Houston, Texas 77204)

  • Yu (Jeffrey) Hu


    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Jerry Hausman


    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)

Product variety is an important strategic tool that firms can use to attract customers and respond to competition. This study focuses on the retail industry and investigates how stores manage their product variety, contingent on the presence of competition and their actual distance from rivals. Using a unique data set that contains all Best Buy and Circuit City stores in the United States, the authors find that a store's product variety (i.e., number of stock-keeping units) increases if a rival store exists in its market but, in the presence of such competition, decreases when the rival store is collocated (within one mile of the focal store). Moreover, collocated rival stores tend to differentiate themselves by overlapping less in product range than do noncollocated rivals. This smaller and more differentiated product variety may be because of coordinated interactions between collocated stores. In summary, this paper presents evidence of both coordination and competition in retailers' use of product variety. This paper was accepted by Bruno Cassiman, business strategy.

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Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 6 (June)
Pages: 1009-1024

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:6:p:1009-1024
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