Understanding Value-Added Resellers’ Assortments of Multicomponent Systems

Interconnect standards increase choices. For example, in cardiac pacemakers, the IS-1 standard enables the “pulse generator” from 6 manufacturers to be combined with the “lead set” from the other 5 to create up to 30 additional mixed-brand pacemakers. However, observed assortment additions are much smaller, which is puzzling because manufacturers in extant models have welcomed such additions to reduce price competition and increase variety. Instead, conflict with the value-added resellers that create and carry these additions is commonplace. The authors extend the literature with an analytical model showing that value-added resellers limit the number and composition of additions to gain better upstream terms. This conflict is exacerbated when “keystone” components are relatively more decisive in influencing customer choices, so their exclusion from an addition represents a larger loss. The empirical study of the multibillion-dollar auto paint refinish market finds assortment additions consistent with the authors’ predictions. The article concludes with a discussion of the role of channel support programs in ameliorating these conflicts.