Capturing the cannibalization effect

Abstract

Cannibalization is defined as the negative effect that one product's sales have on the sales of other products offered by the same rm. In essence, these effects could result with high stock levels on the affected product, leading to lower margins and thus, loss of prot. The situation could also lead to overestimate the positive effect of some products and produce an adoption of suboptimal portfolio management strategies. In short, when ignoring these phenomenons managers are not reaching the best potential solution for their pricing strategies. In order to avoid such situation we will try to build a model that captures the cannibalization effect between and within company product categories and then apply it to forecast product sales.