Estimating Optimal Product Variety of Firms

Product variety is a crucial dimension for successful management. While there are an enormous number of papers on this subject, few give insights on what to do on the estimation of optimal product variety in a concrete situation. Many results are much too sensitive to the assumptions and the conclus...

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Bibliographic Details
Published in:Evolutionary and institutional economics review Vol. 9; no. 1; pp. 11 - 35
Main Author: Shiozawa, Yoshinori
Format: Journal Article
Language:English
Published: Tokyo Springer-Verlag 01.12.2012
Springer Nature B.V
Subjects:
Competition
Consumers
Decision making
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
History of Economic Thought/Methodology
Hypotheses
Monopolies
Political Economy/Economic Systems
Product development
Product differentiation
Profits
Social Policy
Utility functions
Japan
R32
D43
multi-product firm
product diversity
D42
Lancaster characteristics space
product differentiation
L23
M11
O31
L13
ISSN:1349-4961, 2188-2096
Online Access:Get full text
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Summary:Product variety is a crucial dimension for successful management. While there are an enormous number of papers on this subject, few give insights on what to do on the estimation of optimal product variety in a concrete situation. Many results are much too sensitive to the assumptions and the conclusions are often contradictory. This paper presents a new method for estimating optimal variety for a firm. The estimation depends on the estimation of expected coverage function, which is defined in the paper. All the difficult problems in the optimal variety estimation are concentrated in the estimation of this function. But this allows people to discern what are crucial and what are not. The formula obtained here is simple and intuitive, and no similar formula has appeared before in the literature. It provides various hints to the optimal variety estimation by means of costs and sales expectations. The result can be extended to an oligopolistic competition case. The paper concludes by making a comparison with monopoly and oligopoly cases.
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ISSN:1349-4961
2188-2096
DOI:10.14441/eier.A2012002