Final answer:
The statement is false. Cannibalization refers to a decrease in sales for an existing product due to a new product, not an increase. Tying sales is a different concept where the purchase of one product requires the buying of another, potentially unwanted, product.
Step-by-step explanation:
The statement that cannibalization occurs when the sales of a firm's existing product increase with the introduction of a new product is false. Cannibalization in business refers to the situation where a new product eats into the sales of one of the company's existing products.
This outcome is generally not desirable as it can reduce overall profits and market share if not managed properly. Instead of increasing sales, cannibalization causes a company's sales to compete against each other, potentially leading to a loss in total market share when one product attracts customers from the other.
An example of this might be an electronics firm that releases a new smartphone model. If the new model causes a significant number of the firm's customers to switch from the older model to the new model, rather than attracting new customers, cannibalization occurs.
This could happen if the new product offers similar features to the older product but at a more attractive price point or with slight improvements.
On the other hand, tying sales occur when a purchase condition is set by a seller that requires a buyer to buy a second product along with the first one.
This practice can be controversial because it can force consumers to buy something they may not want. An example of this would be if a store only sells a popular DVD when the customer also agrees to purchase a specific model of a portable TV.