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The Length of Product Line in Distribution Channels

College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820
Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
liuf{at}illinois.edu
tcui{at}umn.edu

This paper studies a manufacturer's optimal decisions on extending its product line when the manufacturer sells through either a centralized channel or a decentralized channel. We show that a manufacturer may provide a longer product line for consumers in a decentralized channel than in a centralized channel if the market is fully covered. In addition, a manufacturer's decisions on the length of its product line may not always be optimal from a social welfare perspective in either a centralized or a decentralized channel. Under certain conditions, a decentralized channel can provide the product line length that is socially optimal, whereas a centralized channel cannot.

Key Words: product line; distribution channel; consumer heterogeneity; game theory
History: Received: November 14, 2007; accepted: August 2, 2009.