Product Proliferation and First Mover Advantage in a Multiproduct Duopoly

This study aims to understand product proliferation and first mover advantage in the case of multiproduct firms that engage in Stackelberg competition on the number of varieties and prices. We show that when firms sequentially choose the number of varieties and then simultaneously decide prices, the leader produces more varieties and enjoys first mover advantage. By contrast, when the leader sets both the number of varieties and prices before the follower does, the follower tends to produce more varieties and enjoy second mover advantage in the case of a large demand and a small cost of expanding product lines. This result sharply contrasts with those of studies on the sequential entry of single-product firms. We also show that the market provides too few varieties relative to the social optimum.