Do Firms' Product Lines Include Too Many Varieties?

RAND Journal of Economics, Vol. 28, No. 3, Autumn 1997

17 Pages Posted: 24 Sep 1997

See all articles by Paul Klemperer

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Jorge Padilla

Compass Lexecon

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 (e.g., as the EC forbade a merger of commuter aircraft manufacturers), and forbidding Sunday shopping may sometimes be appropriate public policies.

JEL Classification: L29, D21, D61

Suggested Citation

Klemperer, Paul and Padilla, Jorge, Do Firms' Product Lines Include Too Many Varieties?. RAND Journal of Economics, Vol. 28, No. 3, Autumn 1997. Available at SSRN: https://ssrn.com/abstract=10904 or http://dx.doi.org/10.2139/ssrn.10904

Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 588 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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