Strategic diversification and capacity utilization

This paper analyzes acquisitions resulting in a product line expansion of a firm. When the firm faces a non-stationary and stochastic demand in both t he current and the new product line, switching between the production facil ities may give diversification advantages. Switching between production fac ilities is similar to holding an inventory for both products. A case in the beverages industry illustrates that even when switching costs are relative ly high as compared to inventory costs, switching has significant advantage s over holding inventories. (C) 2001 Elsevier Science BN. All rights reserv ed.