A Model of Product Proliferation with Multiproduct Firms.

Abstract

This paper presents a model of product proliferation by multiproduct firms. Firm behavior is based on a two-stage process in which there is centralized decision making in new product introductions and decentralized management of existing products. In equilibrium, the number of products each firm has, as well as its total profits, are inversely related to the cost of introducing a new product and to the number of firms in the market. But, as the number of rivals increases, the total number of products in the market increases, although total industry profits decrease. Copyright 1987 by Blackwell Publishing Ltd.