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Product line extensions: causes and effects

  • Kostas Axarloglou

    (Democritus University of Thrace, Komotini, Greece)

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    In this paper, and using data from a sample of five US manufacturing industries, we study the implications of market demand growth on product line extensions and the effects of the latter on industry profit margins. Companies extend their product lines in response to expansions in market demand and this tends to depress profit margins in the industry. Finally, these results are quantitatively significant. Copyright © 2007 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 29 (2008)
    Issue (Month): 1 ()
    Pages: 9-21

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    Handle: RePEc:wly:mgtdec:v:29:y:2008:i:1:p:9-21
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    1. James Brander & Jonathan Eaton, 1982. "Product Line Rivalry," Working Papers 519, Queen's University, Department of Economics.
    2. Weitzman, Martin L, 1994. "Monopolistic Competition with Endogenous Specialization," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 45-56, January.
    3. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    4. Sunder Kekre & Kannan Srinivasan, 1990. "Broader Product Line: A Necessity to Achieve Success?," Management Science, INFORMS, vol. 36(10), pages 1216-1232, October.
    5. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
    6. Kadiyali, Vrinda & Vilcassim, Naufel & Chintagunta, Pradeep, 1998. "Product line extensions and competitive market interactions: An empirical analysis," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 339-363, November.
    7. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
    8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    9. Kostas Axarloglou, 2003. "The Cyclicality of New Product Introductions," The Journal of Business, University of Chicago Press, vol. 76(1), pages 29-48, January.
    10. Barry L. Bayus & William P. Putsis, Jr., 1999. "Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes," Marketing Science, INFORMS, vol. 18(2), pages 137-153.
    11. Kadiyali, Vrinda & Vilcassim, Naufel J & Chintagunta, Pradeep K, 1996. "Empirical Analysis of Competitive Product Line Pricing Decisions: Lead, Follow, or Move Together?," The Journal of Business, University of Chicago Press, vol. 69(4), pages 459-87, October.
    12. Lynn O. Wilson & John A. Norton, 1989. "Optimal Entry Timing for a Product Line Extension," Marketing Science, INFORMS, vol. 8(1), pages 1-17.
    13. John R. Hauser & Steven P. Gaskin, 1984. "Application of the “Defender” Consumer Model," Marketing Science, INFORMS, vol. 3(4), pages 327-351.
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