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Inter-divisional Domain Overlap and Product Differentiation

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Using data on the U.S. automobile industry between 1979 and 1999, we have investigated the impact of inter-divisional domain overlap on a division’s product differentiation vis-à-vis sister divisions. The results show that the higher the level of inter-divisional domain overlap, relative to the focal division’s own domain, the higher the chances of locating a new product closer to the existing products of a sister division, thereby decreasing product differentiation vis-à-vis this sister division. We argue that this is due to a high level of similar capabilities between the two divisions and the division with less distinctive capabilities may have little choice but to launch a new product that is close to the products of the other division.

Abstract

Using data on the U.S. automobile industry between 1979 and 1999, we have investigated the impact of inter-divisional domain overlap on a division’s product differentiation vis-à-vis sister divisions. The results show that the higher the level of inter-divisional domain overlap, relative to the focal division’s own domain, the higher the chances of locating a new product closer to the existing products of a sister division, thereby decreasing product differentiation vis-à-vis this sister division. We argue that this is due to a high level of similar capabilities between the two divisions and the division with less distinctive capabilities may have little choice but to launch a new product that is close to the products of the other division.

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