Abstract: Based on the Hotellings model, the cost of product derivation is introduced by using the cost features of product family. Then, for both monopoly and duopoly cases, the derivation condition of product family and the influence direction of factors that have effect on the product derivation are analyzed. For the monopoly case, it shows that: 1) the derivation conditions are dependent on different markets; 2) customer preferences in various conditions result in different influence directions; 3) cost is an inhibition factor for product derivation; and 4) the difference between the variable costs of different products creates different influence direction. For duopoly case, if one gets product derivation, the other will follow. Also, in this case, the influence direction of factors shows interval under the condition of perfect information game.

Key words: product family, product derivation, decision making, influence direction