Effects of Assortment Breadth Announcements on Manufacturer Competition

摘要

Retailers typically use assortment planning to maximize store profits given product characteristics. We study the manufacturers' price-setting interactions and how these can be manipulated by the retailer's assortment strategy. We show that constraining the breadth of the assortment has two main effects on retailer profits: First, a larger assortment may intensify competitive pressure and decrease prices because manufacturers need to fight harder for market share. Second, a smaller assortment may also reduce manufacturer prices because manufacturers want to ensure that they are included in the chosen assortment, which may lead to higher profits despite lower variety and possibly lower revenues. We optimize retailer assortment strategies, taking into account these two effects. We find that when the manufacturers' products are very different in terms of attractiveness, the first effect dominates while the second effect is stronger when products are comparable. Finally, our findings require that retailers communicate the assortment strategy properly: retailers should not disclose the identity of the chosen manufacturers, but should commit to a given assortment breadth.