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Multiproduct Firms: A Nested Logit Approach

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  • Anderson, Simon P
  • de Palma, Andre

Abstract

This paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand. The demand model is parameterized by two variables that characterize different dimensions of preference for variety. These reflect intragroup heterogeneity and intergroup heterogeneity, a group (or nest) being the set of products produced by a firm. There are then two dimensions to market performance: the total number of firms and the range of products produced per firm. It is shown that the market equilibrium involves an excessive number of firms, but each firm provides too few products. Copyright 1992 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 40 (1992)
Issue (Month): 3 (September)
Pages: 261-76

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Handle: RePEc:bla:jindec:v:40:y:1992:i:3:p:261-76

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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  1. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June.
  2. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  3. Perloff, Jeffrey M & Salop, Steven C, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 107-20, January.
  4. Besanko, David & Perry, Martin K & Spady, Richard H, 1990. "The Logit Model of Monopolistic Competition: Brand Diversity," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 397-415, June.
  5. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
  6. Anderson, Simon P & De Palma, Andre, 1992. "The Logit as a Model of Product Differentiation," Oxford Economic Papers, Oxford University Press, vol. 44(1), pages 51-67, January.
  7. Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
  8. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. S. Chan Choi & Wayne S. Desarbo & Patrick T. Harker, 1990. "Product Positioning Under Price Competition," Management Science, INFORMS, vol. 36(2), pages 175-199, February.
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