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

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Sep 25, 2023 32 likes •175 views

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

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MULTIPRODUCT FIRMS IN THE GLOBAL ECONOMY

Why selling too many different products is no good business

Luca Macedoni Aarhus University

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Assistant Professor Luca Macedoni 28 November 2018

How many product types?

Rank your products by sales Best sellers Lower sales

When to stop introducing different products? Core competence Non-core products

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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

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Assistant Professor Luca Macedoni 28 November 2018

Stylized facts

Several countries: US, France, Mexico… Exporting firm For each destination

# of Product Types
Sales

Universe of Export Transactions

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Assistant Professor Luca Macedoni 28 November 2018

Exporting is expensive

Larger & Richer destinations Larger number

f different

products More distant destinations (culturally and geographically) Smaller number

f different

products

Source: Macedoni (2017)

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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

More product types in closer destinations
More product types when demand is large

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Assistant Professor Luca Macedoni 28 November 2018

Know your destination

Apple All product categories Samsung Mobile products

Source: Cavallo et al. (Quarterly Journal of Economics, 2015); Macedoni (2017) Per capita income (log) Per capita income (log) Number of product types (log) Number of product types (log)

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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

More product types in closer destinations
More product types when demand is large
Know your destination
More product types in richer destinations

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Assistant Professor Luca Macedoni 28 November 2018

Competition from outside… and within

New product type

r technology

Sales on own products Sales of competitors Cannibalization Fewer new product types Postpone innovation

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Assistant Professor Luca Macedoni 28 November 2018

An example

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Assistant Professor Luca Macedoni 28 November 2018

Inverse U-shaped relationship

Market share  # products Market share  # products

Source: Goldberg and Verboven (Journal of International Economics, 2001)

UK Car Market 1995

Market Share Number of car models (log)

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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

More product types in closer destinations
More product types when demand is large
Know your destination
More product types in richer destinations
It depends on size
If large  (especially) beware of cannibalization

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Assistant Professor Luca Macedoni 28 November 2018

Response to foreign competition

Number of Product Types Market Share

Focus on core competence Product Proliferation

Source: Mayer et al. (American Economic Review, 2014); Lopresti (Journal of International Economics, 2016)

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MULTIPRODUCT FIRMS IN THE GLOBAL ECONOMY

Why selling too many different products is no good business

Luca Macedoni Aarhus University