Product Assortment in a Triopoly

Producers of super-premium ice cream, such as Häagen-Dazs, offer a smaller assortment of flavors than the producers of lesser quality ice cream. Examples of this phenomenon can be found in other industries as well. In many industries, the producers of higher-quality products offer a smaller assortment of flavors, colors, sizes, patterns, textures, fragrances, tones, styles, models, designs, types or other options. This paper explores when and why producers of super-premium products should find it profitable to offer a smaller assortment than the producers of nonpremium products. We derive a Nash equilibrium both on prices and product assortments for a triopoly. At the Nash equilibrium, we show that additional product quality, increased consumer price-sensitivity and greater assortment costs discourages product assortment. We also show that a larger market potential, greater competitive costs and sharper competition encourage more assortment by the super-premium producer.