Do Firms' Product Lines Include Too Many Varieties?

Paul Klemperer and A. Jorge Padilla

RAND Journal of Economics, 1997, vol. 28, issue 3, 472-488

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.

Date: 1997
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