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Remark on "appropriateness and impact of platform-based product development".

Article Excerpt
1. Introduction

Krishnan and Gupta (2001) examine the use of platform-based manufacturing and product development and its impact on a firm's product line and product positioning decisions. In contrast to the conclusion reached by Krishnan and Gupta, I argue that when platform production exhibits manufacturing overdesign costs, then platform adoption will decrease product differentiation (independent of whether of not it exhibits platform economies). I give a formal definition of overdesign costs and show that, for a general class of cost functions that exhibit overdesign costs, platform adoption reduces product differentiation. Krishnan and Gupta reach a different conclusion because we define overdesign costs differently. More precisely, their specification of platform economies implies the absence of overdesign costs as I have defined them.

Krishnan and Gupta consider a monopolist producing a product for consumers with heterogeneous tastes for quality. The monopolist decides whether to produce one or two product varieties, what product quality to produce, and, if it produces two goods, whether to manufacture the products on a common platform. Using a common platform (which includes the two products' shared components) enables the firm to exploit economies of scale in the production of the platform (a common input). So platform manufacturing can generate economies of scope. However, product design and manufacturing processes place limits on platforms, In particular, it may be necessary to include components on the platform that are used only by the high quality product. When too many of these nonshared components must be placed on the common platform, the firm may instead decide to produce the two goods independently. Thus platform production may be limited by overdesign costs. Krishnan...