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I like the idea of 301 redirecting to a new URL, especially if you are planning to drop one of the products. I think that the domains are a tossup. From my experience, EMD are still very effective in many verticals. I agree that you should look into possible causes for the penalty.  Try the Panguin Tool (http://www.barracuda-digital.co.uk/panguin-tool/) to see if your traffic drop aligns with a specific penalty. Did you receive any Unnatural Link Warnings in your Google Webmaster Tools? (if yes read this http://googlewebmastercentral.blogspot.com/2013/06/backlinks-and-reconsideration-requests.html) If you know that you have some questionable links, try to have them removed or consider the Disavow Tool.