Turf Wars: Product Line Strategies in Markets with Preference Based Segmentation

Posted: 24 Feb 2013 Last revised: 2 Oct 2017

See all articles by Yogesh V. Joshi

Yogesh V. Joshi

University of Maryland - Department of Marketing

David Reibstein

Marketing Science Institute; University of Pennsylvania - Marketing Department

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: May 28, 2013

Abstract

It is often argued that in competitive markets a firm expands its product line to benefit at the expense of its competitor: more products enable a firm to attract higher demand and/or charge higher prices to earn more profits. We show that these conclusions may be reversed, even without market size expansion. In our model, two firms competing in a horizontally differentiated market are located at its two ends, where each end signifies a firm’s home turf. Each firm considers expanding scope by launching a new product that directly attacks the competitor’s turf. We show that an equilibrium exists such that only the stronger turf firm expands scope, but profits can be higher for both firms. This is because scope expansion enables the stronger turf firm to better price discriminate among its customers while minimizing price competition. The competitor responds by lowering price to gain share and earns a higher profit. Thus, higher core prices for the stronger firm translate to higher demand for the competing firm, increasing profit for both. Similar results hold when firms deploy generic or defensive strategies during product line expansion.

Keywords: product line strategy, differentiation, multi-product competition, game theory

JEL Classification: C72, D43, L13, M21, M31, O32

Suggested Citation

Joshi, Yogesh V. and Reibstein, David and Zhang, Z. John, Turf Wars: Product Line Strategies in Markets with Preference Based Segmentation (May 28, 2013). Robert H. Smith School Research Paper No. RHS-06-149. Available at SSRN: https://ssrn.com/abstract=2222869 or http://dx.doi.org/10.2139/ssrn.2222869

Yogesh V. Joshi (Contact Author)

University of Maryland - Department of Marketing ( email )

College Park, MD 20742
United States

David Reibstein

Marketing Science Institute ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

University of Pennsylvania - Marketing Department

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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