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Strategic Product Line Choice Under Asymmetric Demand Structure

Author

Listed:
  • Levent Kutlu

    (Georgia Institute of Technology)

  • Alper Nakkas

    (University of Texas at Arlington)

Abstract

We examine strategic product line choices of manufacturers in a stylised duopoly model where products have asymmetric and interdependent market conditions. We characterise the optimal product line decisions and show that manufacturers always prefer to have head-to-head competition (and never segment markets) when product line setup cost is small relative to profitability of the products. When setup costs are high, symmetric manufacturers may prefer to have asymmetric product lines or market segmentation. We show that high setup costs lead to the market segmentation outcome only if there is no significant market size difference and the level of product substitutability is moderate.

Suggested Citation

  • Levent Kutlu & Alper Nakkas, 2018. "Strategic Product Line Choice Under Asymmetric Demand Structure," The Japanese Economic Review, Springer, vol. 69(3), pages 347-359, September.
    • Handle: RePEc:spr:jecrev:v:69:y:2018:i:3:d:10.1111_jere.12186
    DOI: 10.1111/jere.12186
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    References listed on IDEAS

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    More about this item

    Keywords

    D43; L11; L13;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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