Product Portfolio Management in Competitive Environments

TL;DR

This paper models product portfolio management in competitive markets as an n-player game, analyzing how firms choose optimal product mixes to maximize shared surplus at Nash equilibrium.

Contribution

It introduces a game-theoretic framework for PPM considering competitors' actions, which is less explored in traditional PPM studies.

Findings

Firms' optimal portfolios are derived from Nash equilibrium analysis.

Strategic interactions significantly influence product portfolio choices.

The model provides insights into competitive dynamics in product diversification.

Abstract

Product diversity is one of the prominent factors for customers' satisfaction, while from the firms' perspective, the additional engineering costs required for product diversity should not exceed the acquired profits from the increase in their market share. Thus, one of the critical decision-making tasks for companies is the selection of an optimal mix of products, namely product portfolio management (PPM). Traditional studies on PPM problem have paid relatively less attention to the actions of other competitors. In this paper, we study PPM problem in a competitive environment where each firm's objective is to maximize its expected shared surplus. We model the competition with an $n$-player game that optimal product portfolios are driven from its Nash equilibrium. Utility functions are determined by the expected value of the shared surplus. We analyze the strategic behavior of firms to determine their optimal product portfolios.