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Multi-product Firms and Product Variety

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  • Ramon Caminal

    ()

  • Lluís M. Granero

    ()

Abstract

The goal of this paper is to study the role of multi-product firms in the market provision of product variety. The analysis is conducted using the spokes model of non-localized competition proposed by Chen and Riordan (2007). Firstly, we show that multi-product firms are at a competitive disadvantage vis-a-vis single-product firms and can only emerge if economies of scope are sufficiently strong. Secondly, under duopoly product variety may be higher or lower with respect to both the first best and the monopolistically competitive equilibrium. However, within a relevant range of parameter values duopolists drastically restrict their product range in order to relax price competition, and as a result product variety is far below the efficient level.

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Bibliographic Info

Paper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 734.08.

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Length: 39
Date of creation: 10 Mar 2008
Date of revision:
Handle: RePEc:aub:autbar:734.08

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Keywords: product variety; multiproduct firms; monopolistic;

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References

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  1. Paul Allanson & Catia Montagna, 1999. "Multiproduct Firms and Market Structure: An Explorative Application to the Product Life Cycle," Dundee Discussion Papers in Economics 101, Economic Studies, University of Dundee.
  2. Jiandong Ju, 2003. "Oligopolistic Competition, Technology Innovation, and Multiproduct Firms," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 346-359, 05.
  3. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  4. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
  8. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 37-45, January.
  9. Peter Neary & Carsten Eckel, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics.
  10. repec:fth:louvco:9919 is not listed on IDEAS
  11. Antonio Minniti, 2006. "Multi-product Firms, R&D, and Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(3), pages 4.
  12. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, 07.
  13. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  14. Volker Nocke & Stephen Yeaple, 2006. "Globalization and Endogenous Firm Scope," PIER Working Paper Archive 06-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  15. 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.
  16. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Wiley Blackwell, vol. 77(1), pages 188-217, 01.
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Cited by:
  1. Emilie Dargaud & Carlo Reggiani, 2012. "On the Price Effects of Horizontal Mergers : A Theoretical Interpretation," Working Papers 1222, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Ramon Caminal, 2009. "Markets and linguistic diversity," UFAE and IAE Working Papers 781.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  3. Carlo Reggiani, . "Optimal Differentiation and Spatial Competition: The Spokes Model with Product Delivery," Discussion Papers 09/13, Department of Economics, University of York.
  4. Emilie Dargaud & Carlo Reggiani, . "Horizontal Mergers in the Spokes Model," Discussion Papers 09/12, Department of Economics, University of York.

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