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Do Firms' Product Lines Include Too Many Varieties?

Author

Listed:
  • Paul Klemperer
  • A. Jorge Padilla

Abstract

A firm that offers an additional product can capture business from rival firms for other products when consumers prefer to concentrate their purchases at a single supplier. This may lead firms to offer excessive product variety from the social standpoint. A firm may even completely foreclose competing firms from the market by introducing a new product. Forbidding new product introductions (e.g., forbidding universal banking or forbidding a new airline route), forbidding mergers that broaden firms' product lines (as, e.g., the EC forbade a merger of commuter aircraft manufacturers), and forbidding Sunday shopping may sometimes be appropriate public policies.

Suggested Citation

  • Paul Klemperer & A. Jorge Padilla, 1997. "Do Firms' Product Lines Include Too Many Varieties?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 472-488, Autumn.
  • Handle: RePEc:rje:randje:v:28:y:1997:i:autumn:p:472-488
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    Cited by:

    1. Bouckaert, Jan & Degryse, Hans & Provoost, Thomas, 2010. "Enhancing market power by reducing switching costs," Economics Letters, Elsevier, vol. 109(2), pages 131-133, November.
    2. Chen, Zhijun & Rey, Patrick, 2013. "Competitive Cross-Subsidization," IDEI Working Papers 808, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Luca Lambertini, 2003. "The monopolist's optimal R&D portfolio," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 561-578, October.
    4. Inderst, Roman & Irmen, Andreas, 2005. "Shopping hours and price competition," European Economic Review, Elsevier, vol. 49(5), pages 1105-1124, July.
    5. Timothy J. Richards & Stephen F. Hamilton & Koichi Yonezawa, 2017. "Variety and the Cost of Search in Supermarket Retailing," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 263-285, May.
    6. Luis Garicano & Thomas N. Hubbard, 2003. "Specialization, Firms, and Markets: The Division of Labor Within and Between Law Firms," NBER Working Papers 9719, National Bureau of Economic Research, Inc.
    7. Antonio Rosato, 2016. "Selling substitute goods to loss-averse consumers: limited availability, bargains, and rip-offs," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 709-733, August.
    8. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h56210pa6 is not listed on IDEAS
    9. Evens Salies, 2012. "Product Innovation when Consumers have Switching Costs," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 31 Edward Elgar Publishing.
    10. Dmitri Kuksov & J. Miguel Villas-Boas, 2010. "When More Alternatives Lead to Less Choice," Marketing Science, INFORMS, vol. 29(3), pages 507-524, 05-06.
    11. Luca Lambertini, 2009. "Optimal Product Proliferation in Monopoly: A Dynamic Analysis," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 1(1), pages 80-97, September.
    12. Homsombat, Winai & Lei, Zheng & Fu, Xiaowen, 2014. "Competitive effects of the airlines-within-airlines strategy – Pricing and route entry patterns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 1-16.
    13. repec:oup:jcomle:v:1:y:2005:i:4:p:679-705. is not listed on IDEAS
    14. Boudhayan Sen & Jiwoong Shin & K. Sudhir, 2012. "Demand Externalities from Co-Location," Cowles Foundation Discussion Papers 1850, Cowles Foundation for Research in Economics, Yale University.
    15. Evens Salies, 2011. "Product innovation when consumers have switching costs," Working Papers hal-01069477, HAL.
    16. repec:oup:ajagec:v:99:y:2017:i:1:p: is not listed on IDEAS
    17. Robert A. Ritz, 2009. "Carbon leakage under incomplete environmental regulation: An industry-level approach," Economics Series Working Papers 461, University of Oxford, Department of Economics.
    18. repec:eee:eecrev:v:101:y:2018:i:c:p:330-353 is not listed on IDEAS
    19. Timothy Richards & Stephen Hamilton, 2015. "Attribute Search in Online Retail Grocery Markets," Working Papers 1505, California Polytechnic State University, Department of Economics.
    20. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    21. Jens Schmidt & Richard Makadok & Thomas Keil, 2016. "Customer-specific synergies and market convergence," Strategic Management Journal, Wiley Blackwell, vol. 37(5), pages 870-895, May.
    22. Alessandro Gavazza, 2011. "Demand spillovers and market outcomes in the mutual fund industry," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 776-804, December.
    23. Jorge Florez-Acosta & Daniel Herrera-Araujo, 2017. "Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior," PSE Working Papers halshs-01518146, HAL.

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