An Empirical Analysis of Firms' Product Line Decisions

Abstract

Despite the importance of product line management as a competitive tool, empirical research addressing the determinants of firm product line decisions is sparse. In this article, the authors propose and empirically estimate a descriptive model of firm product line decisions in the personal computer industry over the period 1981-92. The model incorporates the firm's initial choice of the direction of a product line change (i.e., the product line can be expanded, contracted, or maintained) and the conditional choice related to the magnitude of any product line change (i.e., how many products to introduce or withdraw). The authors show that there are important substantive insights to be gained by analyzing the product line decision in this fashion. In the personal computer industry, for example, firms expand their product lines when industry barriers are low or market opportunities are perceived to exist. High market share firms aggressively expand their product lines, as do firms with relatively high prices or short product lines. In general, the results highlight the various internal and external factors that influence firms' management of their product lines.