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Market Integration and Industrial Specialization on a Monopolistic Competitive Market

Author

Listed:
  • Drud Hansen, Jørgen

    (SDU-Odense University)

  • Guldager Jørgensen, Jan

    (SDU-Odense University)

Abstract

This paper examines the relationship between market integration and product diversification in a Chamberlinian model of monopolistic competition. In the first version of the model, production of the firm is organised in activities producing either one or two horizontally differentiated product-variants. The cost functions show both scale and scope economies. Market integration is illustrated by an increase in the market size. For increasing market size, each firm shifts from producing two variants to producing one variant only at a certain threshold value of market size. Passing this threshold value the firm size measured by total output changes discontinuously leaving the effect on firm size ambiguous. For specific specification of the perceived demand of the individual firm hysteresis of the industrial structure may appear in the sense that the threshold value of the market size for shifting from two to one variant production exceeds that of the threshold value of market size of shifting from one to two variants. In the last part of the paper, the model is generalised to a continuum of variants and it is shown that an increase of the market size reduces the number of variants produced by each firm, whereas the hysteresis phenomenon disappears.

Suggested Citation

  • Drud Hansen, Jørgen & Guldager Jørgensen, Jan, 2001. "Market Integration and Industrial Specialization on a Monopolistic Competitive Market," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 279-298.
    • Handle: RePEc:ris:integr:0165
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    Citations

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    Cited by:

    1. Jan Guldager JØrgensen & Philipp J.H. Schr–der, 2003. "Reductions in Real versus Tariff Barriers: The Impact on Industry Concentration," Journal of Industry, Competition and Trade, Springer, vol. 3(4), pages 251-268, December.
    2. Schröder, Philipp J.H. & Jørgensen, Jan G., 2001. "Reductions in Real versus Tariff Barriers: The Effects on Industry Concentration," MPRA Paper 124, University Library of Munich, Germany.

    More about this item

    Keywords

    Market Integration; Monopolistic Competition; Specialization; Hysteresis of Industrial Structure;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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