Abstract: ‘‘More is better’’ has been a belief held by many retailers when they manage product assortments. We challenge this conventional wisdom by demonstrating that a retailer may face more price sensitive demand for existing products when expanding its assortments. To measure the effects of assortment expansion on price sensitivity, we exploit the state of Washington’s privatization of liquor sales in 2012 that generated exogenous variation in retailers’ assortments over time. We find that customers are on average more price sensitive when purchasing from other drink categories after a store started to carry liquor but its impact is heterogeneous. To understand the differential changes in the price sensitivity across product categories depending on whether they are complements or substitutes to the new one, we build a demand model that simultaneously estimates the degree of complementarity between product categories and the changes in price sensitivity upon assortment expansion. We find that the increase in the price sensitivity happens in product categories that are complements to the new one, and that these changes cannot be rationalized by alternative explanations, e.g., correlated preferences across product categories and changes in error variance. Based on the demand estimates, we conduct counterfactual simulations and show that the observed prices are consistent with retailers’ (biased) belief that the price sensitivity does not vary with assortment, which results in significant profit loss.