Limited Edition Products: When and When Not to Offer Them

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Abstract

Many brands today introduce limited edition ( LE) products as part of their product line. However, little is known about the conditions under which a brand should introduce an LE product or the competitive implications of doing so. We investigate this issue using a game theoretic model of a market where two brands compete for consumers who desire exclusivity. Our analysis shows that adding an LE product has a positive direct effect on brand profits through the increased willingness of consumers to pay for such a product, but also has a negative strategic effect by increasing price competition between brands. These effects result in different conclusions depending on the nature of brand differentiation. When brands differ in quality, we show that only the high-quality brand may gain in comparison to a scenario where there are no LE products. Although a low-quality brand may offer an LE product as a defensive strategy, its profits are lower than would be in a world without LE products because of the negative strategic effect. When we consider brands that are differentiated on a horizontal attribute such as taste, we find that the negative strategic effects cause lower equilibrium profits if both brands introduce LE products. Yet brands cannot avoid introducing LE products because they face a prisoners' dilemma.