Would it ever make sense for a firm to offer a new product line that they know would cannibalize an existing line? Explain your answer please.
It may make sense for a business to offer a new product line that initially appears to be one that cannibalizes an existing product line. It is often seen that with the advent of new technologies, the choice of consumers changes and they are more likely to abandon products that make use of the earlier technology and adopt products that make use of the newer technology.
As an example consider the following scenario: With the introduction of digital cameras, consumers that were using film based cameras in the past can now make a shift to the newer technology that is more user-friendly and using which even a novice photographer can take better photographs.
If a company ABC that is the market leader in film based cameras decides not to launch a new range of digital cameras it can lose a large portion of its market share to newer companies that introduce digital cameras before it. It is true that the new line of digital cameras will cannibalize the existing line of cameras made by the company. But this is something that the company has no control over. The new line of digital cameras has to be introduced if the company wants to remain in the market of cameras. Its earlier line of film based cameras is going to be abandoned by a majority of customers. The decision whether it wants to sell digital cameras or not is based solely on whether it wants to lose its customers to its competitors or allow them to make a shift to a new line of products made by ABC.