Market Demand and Product Clustering.

This paper explores an alternative explanation for the phenomenon of product clustering. The author shows that, because of information externalities, competitive firms tend to market new products that are "close" to those of other firms because it is cheap, perhaps costless, to determine the demand for such goods. In contrast, demand information for goods that are truly new and different is costly to acquire. The likelihood of these goods being introduced in competitive markets is also examined. Copyright 1990 by Royal Economic Society.