Product Line Expansion Behavior Of Chinese Car Industry

The automotive industry is an important pillar industry of national economy. The car is the part of the automotive industry most closely related to people’s daily life. Its healthy development plays an important role in the national economy. Over the past decade, China’s car industry has developed rapidly. especially since China entered into the WTO. The world’s auto giants all entered the Chinese market. The number of manufacturers and their products in China’s car industry become bigger and bigger.Product line expansion strategy is an important competitive strategic tool for a multi-product manufacturer. This paper attempts to explore the relationship between the product lines expansion and some industry and market factors, as well as the differences between the various market segments, by studying the car manufacturers in China’s car industry.First, this paper reviews the relevant literatures about competitive pricing and product differentiation as strategic entry barriers, and also the researches about firms using product lines expansion to compete. Then we do a descriptive analysis of the behavior of product line expansion of the car manufacturers in China’s car industry, based on four market segments. After that, on the basis of Bayus and Putsis’s (1999,2001) model, we build a comprehensive empirical research framework taking account of both the determinants and outcomes of product lines expansion, and put forward hypothesis. To test the hypothesis, we use the sample data of China’s car industry from1999to2007, and do the econometric test by the simultaneous equations of market share, product average price and product line equation in different market segments. The final conclusion is:in the mini-car market, enterprises mostly carry out price competition, and the effect of product lines expansion is not significant. The market structure of ordinary car market is competitive with low industry concentration. The effect of product lines expansion in it is relatively significant, and the product line length is proportional to market share and product prices. In the midsize car market, the joint venture has strong market forces, so the effect of product lines expansion is not as significant as in the ordinary car market. However, we can still observe the positive effect of product line length to prices. On the basis of our study, at the end of this paper we give a few suggestions for the car companies:in the mini-car market, focus on lower costs; in the general level and mid-size car market, invest on the R&D of new product.