When a company come out with a new

When a company come out with a new product, its competitors typically go on the defensive, odds the that offering will eat into their sales. Reponses might include cranking up making efforts offering discounts to channel partners, and even lobbying for regulations that would hinder the rival’s expansion. In many case, though, such actions are misguided. Although the conventional wisdom that a rival’s launch will hurt profit is often concern, my research shoes that companies sometimes see profits increase after a rival’s rollout -even when they don’t aggressively seek ways to squelch the new product’s sales.
The underlying mechanism is pretty simple: When a company extend a product line, it often raises the prices of its existing products. The hikes might be designed to make the new product look cheaper and thus more attractively by comparison or to capture the value customers place on a broader line of offerings. As that company adjust its pricing, its competitor can follow suit without risking customer defection over price.
Consider what happened when Yoplait became the first major producer to market low-fat yogurt in United States. Although Dannon took a 5 % hit in units sold during the new product’s initial year, the vast majority of its customers didn’t defect to Yoplait; they preferred Dannon’s style of yogurt. And because Yoplait had raised prices across its product line, Dannon rises its prices as well, by more than 10%. So despite the 5% decrease in volume, Dannon’s revenue increased by 5%.
A similar dynamic plays out in fast food. My research shows that McDonald’s franchisees who open additional outlets (a from of horizontal product extension)