Market Dominance and Imitative Response to Product Proliferation: A Competitive Dynamics Perspective

Abstract

Extant research theorizes that market leaders often use product proliferation to saturate product space thereby deterring rivals from introducing close substitutes. This study argues that this overlooks the diversity of market leaders. Market leaders run the gamut from firms with temporary leadership to firms that dominate their industry for decades. Consequently, the impact of product proliferation as an imitation barrier may not always be the same. In this paper we focus on product proliferation by dominant market leaders. Using competitive dynamics perspective, we argue that in competitive action-reaction context market followers will not desist from imitation, but instead imitate the market leaders in order to avoid falling behind in an evolving market. We test our predictions using data drawn from Indian automobile industry (2009-2019) which is consistently dominated by a dominant market leader: Suzuki Motors. We show that product proliferation by dominant firm in a given product submarket will result in imitative product proliferation response from rival firms. We also find that the imitative product proliferation by the rivals, as a response to the dominant firm’s product proliferation in a given product submarket, will result in performance gains for the imitating firms. Conversely, we do not find that when the dominant firm’s product proliferation occurs in a more complex product submarket then the likelihood of imitative product proliferation from the rival firms in this submarket will decrease, and similarly, we do not find that rivals’ imitative product proliferation in a complex product submarket will result in greater imitating firm performance.