The effect of product line renewal and proliferation on competitors Contagion or deterrence?

Companies face conflicting forces in deciding on their product lines size and characteristics A bigger product line enables them to better answer to different consumers tastes. However, the proliferation of product line skus drives up manufacturing and inventory costs. A third influence stems from competitive considerations. Focusing on the latter, we set out to explore a number of straightforward research questions regarding the reaction of incumbent competitors to product proliferation in the market. The question of central focus is the imitative behavior of each of the competitors. Looking within an industry, do competitors work in lock-step with each other, leading to a convergence of their product lines? Is this driven by exogenous factors, or is it more the result of each of the competitors not wanting to be left too far behind their rivals? Or do competitors attempt to differentiate their product lines, leading to a divergence of their product lines? Preliminary results on the laser printer market indicate that the competitive effect of product line proliferation occurs not as a result of atomistic competition but at the level of the product line.