An Empirical Analysis of Firm Product Line Decisions

In this paper, we empirically estimate a descriptive model of firm product line decisions in the personal computer industry over the period 1981-1992. Our analysis 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). For this industry, we find that firms expand their product lines when industry barriers are low or market opportunities are perceived to exist. We also find that high market share firms aggressively expand their product lines, as do firms with relatively high prices or short product lines. In general, our results highlight the various internal and external factors that influence firms in managing their product lines.