When the Monopoly is the Limit : Product Portfolio Depth in Competitive Environments

We study the problem of defining the product-variety portfolio of a firm in a competitive environment. Large portfolios have become prevalent in many industries supported by competitive pressures and the expectations of increasing revenues due to a wider offer. Such practice, however, is often accompanied by additional costs and inefficiencies that call for the right balance of portfolio sizes. We focus on duopolies where competitors decide the number of varieties to offer in the market. We derive analytical results for the settings where firms decide product-variety portfolio sizes simultaneously or in a leader/follower structure (Stackelberg game). Grounded on a particular set of demand models, our analytical results suggest that competition may be the wrong argument to extend product-varieties portfolios beyond that of a monopolist. When generalizing the demand models, we show the robustness of our previous results through numerical experiments. We reach similar conclusions when we extend our analysis beyond duopoly and to the settings of incomplete information