Do Firms' Product Lines Include Too Many Varieties?

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.