Product lines and new product introduction: competition versus cannibalization in the personal computer industry

Abstract We examine the adoption by personal computer manufacturers of newly developed Intel processors. We find that firms that currently offer the top-of-the-line processor are more likely to be early adopters of a newly developed chip, regardless of whether or not that chip is the new top-of-the-line processor. Firms that are currently offering a processor that is adjacent in performance to a new chip, but slower, are not more likely to adopt that chip when it is not top of the line. These findings account for the overall depth of a firm’s product line and its propensity to be an early adopter of new Intel processors. The evidence suggests that, in the personal computer industry, competitive considerations outweigh price discrimination and product cannibalization considerations at the top of market where margins are high. Firms with high-end products adopt new processors to stem the loss of high margin consumers to competitors and to discourage these competitors from offering the new processors. The evidence does not support the notion that firms without top-of-the-line products attempt to “leapfrog” the competition.