Divisionalization, product cannibalization and product location choice: Evidence from the U.S. automobile industry



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Texas A&M University


This study argues that a firm's product location choice may be a function of the firm's way of splitting the product market (i.e., divisionalization) and the concern for product cannibalization at the division and the firm levels. The focus of this study is at the division level and a division's new product location choice vis-?-vis its own products (intra-divisional new product distance), the products of a rival division of competing firms (inter-firm divisional new product distance), and the products of a sister division of the same firm (intra-firm divisional new product distance). The hypotheses were tested using data on the U.S. automobile industry between 1979 and 1999. The results show that a focal division with a high level of inter-firm divisional domain overlap with a rival division, relative to the focal division's own domain, is more likely to locate its new product (here new car model) closer to that rival's existing car models. And it was also found that divisional density affects a division's new product location choice. But this study didn't find any significant role of divisional status on new product location choice. And contrary to our expectation, the results of intra-firm divisional domain overlap and new product location choice suggest that inter-divisional product cannibalization might not be such an important concern when divisions introduce their new products, as we had originally expected. By addressing the firm's competitive engagement in the context of a division's new product location choice, this study expands the basic logic of market overlap at the firm level into the unit- or division-level, and highlights how a division's new product location choice is affected by intra-firm divisional structural relationship as well as interfirm divisional structural relationship. In so doing, this study hopes to contribute to the literature on divisionalization, new product location choice, competition at the unit-level, and product cannibalization, among others.