MULTIPRODUCT FIRMS IN THE GLOBAL ECONOMY Why selling too many - PowerPoint PPT Presentation

MULTIPRODUCT FIRMS IN THE GLOBAL ECONOMY Why selling too many different products is no good business Luca Macedoni Aarhus University

How many product types? Rank your products by sales Best sellers Lower sales Core competence Non-core products When to stop introducing different products? Assistant Professor Luca Macedoni 28 November 2018

How to decide the number of product types? Trade Costs Characteristics of the destination Competition from other firms and within Assistant Professor Luca Macedoni 28 November 2018

Stylized facts Exporting firm Universe of Export Transactions For each destination  # of Product Types Several countries:  Sales US, France, Mexico… Assistant Professor Luca Macedoni 28 November 2018

Exporting is expensive Larger number Larger & Richer of different destinations products More distant Smaller number destinations of different (culturally and products geographically) Source: Macedoni (2017) Assistant Professor Luca Macedoni 28 November 2018

How to decide the number of product types?  More product types in closer destinations Trade Costs  More product types when demand is large Characteristics of the destination Competition from other firms and within Assistant Professor Luca Macedoni 28 November 2018

Know your destination Apple Samsung All product categories Mobile products Number of product types (log) Number of product types (log) Per capita income (log) Per capita income (log) Source: Cavallo et al. (Quarterly Journal of Economics, 2015); Macedoni (2017) Assistant Professor Luca Macedoni 28 November 2018

How to decide the number of product types?  More product types in closer destinations Trade Costs  More product types when demand is large  Know your destination Characteristics of the  More product types in richer destinations destination Competition from other firms and within Assistant Professor Luca Macedoni 28 November 2018

Competition from outside… and within New product type or technology Sales of competitors Sales on own products Cannibalization  Fewer new product types  Postpone innovation Assistant Professor Luca Macedoni 28 November 2018

An example Assistant Professor Luca Macedoni 28 November 2018

Inverse U-shaped relationship UK Car Market 1995 Market share Market share  # products  # products Number of car models (log) Market Share Assistant Professor Luca Macedoni 28 November 2018 Source: Goldberg and Verboven (Journal of International Economics, 2001)

How to decide the number of product types?  More product types in closer destinations Trade Costs  More product types when demand is large  Know your destination Characteristics of the  More product types in richer destinations destination  It depends on size Competition from other  If large  (especially) beware of cannibalization firms and within Assistant Professor Luca Macedoni 28 November 2018

Response to foreign competition Product Focus on core Proliferation competence Number of Product Types Market Share Source: Mayer et al. (American Economic Review, 2014); Lopresti (Journal of International Economics, 2016) Assistant Professor Luca Macedoni 28 November 2018

MULTIPRODUCT FIRMS IN THE GLOBAL ECONOMY Why selling too many different products is no good business Luca Macedoni Aarhus University