PRODUCER RISK,PRODUCT COMPLEMENTARITY AND PRODUCT DIVERSIFICATION

In this paper, a model is presented of the product diversification problem which features both producer risk aversion and product complementarity as determinants of product diversification. Although both risk aversion and product complementarity are, in the absence of the other, incentives to diversity production, when the two are present their joint influence may create a disincentive to diversification. In particular, an increase in the value of product complementarity may result in reduced product diversification for a risk-averse producer.