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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 Barcelona Graduate School of Economics in its series Working Papers with number 338.

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Date of creation: Mar 2008
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Handle: RePEc:bge:wpaper:338

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Keywords: product variety; multiproduct firms; monopolistic competition; spatial models;

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References

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  1. repec:bla:restud:v:77:y:2010:i:1:p:188-217 is not listed on IDEAS
  2. 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.
  3. 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.
  4. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
  5. 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.
  6. 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.
  7. repec:fth:louvco:9919 is not listed on IDEAS
  8. Minniti, Antonio, 2006. "Multi-Product Firms, R&D, and Growth," MPRA Paper 2097, University Library of Munich, Germany.
  9. Brander, James A & Eaton, Jonathan, 1984. "Product Line Rivalry," American Economic Review, American Economic Association, vol. 74(3), pages 323-34, June.
  10. Ottaviano, Gianmarco Ireo Paolo & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  11. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
  12. Allanson, Paul & Montagna, Catia, 2005. "Multiproduct firms and market structure: An explorative application to the product life cycle," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 587-597, September.
  13. Jiandong Ju, 2003. "Oligopolistic Competition, Technology Innovation, and Multiproduct Firms," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 346-359, 05.
  14. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 37-45, January.
  15. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  16. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  17. Simon P. Anderson & Andr� Palma, 2006. "MARKET PERFORMANCE WITH MULTIPRODUCT FIRMS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 95-124, 03.
  18. 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.
  19. Robert Feenstra & Hong Ma, 2007. "Optimal Choice of Product Scope for Multiproduct Firms under Monopolistic Competition," NBER Working Papers 13703, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Granero, Lluís M., 2013. "Most-favored-customer pricing, product variety, and welfare," Economics Letters, Elsevier, vol. 120(3), pages 579-582.
  2. 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.
  3. Caminal, Ramon, 2010. "Markets and linguistic diversity," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 774-790, December.

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