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This paper examines the relationship between information technology and product variety. Consistent with prior theoretical work, we argue that IT and product variety are complements. IT innovations such as computer-aided design and flexible manufacturing technology have enabled firms to offer greater product variety at a reasonable cost. Similarly, firms seeking to offer greater variety can facilitate this strategy through IT investment. Using a novel approach to measuring product variety at the firm level through trademark counts we examine the relationship between IT and variety in four ways: direct correlations, IT and variety demand estimation, productivity analyses, and market value analyses. We utilize an 11-year panel data set of information technology capital stock, trademark holdings, and other measures for 512 Fortune 1000 firms to test our hypotheses. Overall, we find that IT is found to be associated with increased product variety, and that increased product variety increases demand for IT investment. Complementarities between IT and product variety are not significant in the productivity analysis but appear strongly when we consider their influence on firm valuation.
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