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Monopolistic competition, multiproduct firms and optimum product diversity

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  • OTTAVIANO, Gianmarco

    (Universita di Bologna, Italy, CORE, Louvain-la-Neuve, Belgium and CEPR)

  • THISSE, Jacques-François

    ()
    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), 1348 Louvain la Neuve, Belgium)

Abstract

This paper tackles the issue of optimum product diversity in an imperfectly competitive market with small or large firms. First, it develops a quadratic utility model of monopolistic competition with horizontal product differentiation which avoids some of the main pitfalls of the S-D-S approach. Second, it extends the model to the case of multiproduct firms showing how product diversity is affected with respect to monopolistic competition. In particular, it is shown that monopolistic competition with single-product firms is the limiting case of oligopolistic competition with multiproduct firms when either varieties gets more and more differentiated or when the entry cost goes further and further down.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1999019.

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Date of creation: 01 Mar 1999
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Handle: RePEc:cor:louvco:1999019

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  1. 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).
  2. Paul Romer, 1991. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  3. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-29, June.
  4. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  5. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  6. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  7. Dixit, Avinash K & Stiglitz, Joseph E, 1979. "Monopolistic Competition and Optimum Product Diversity: Reply," American Economic Review, American Economic Association, vol. 69(5), pages 961-63, December.
  8. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: Special Results," Economic Journal, Royal Economic Society, vol. 95(380), pages 889-908, December.
  9. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  10. Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Hart, Oliver D, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 529-46, October.
  12. G.C. Archibald & B.C. Eaton & Richard Lipsey, 1982. "Address Models of Value Theory," Working Papers 495, Queen's University, Department of Economics.
  13. GARY-BOBO, Robert J., . "Cournot-Walras and locally consistent equilibria," CORE Discussion Papers RP -867, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  15. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
  16. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  17. GABSZEWICZ, Jean J. & SHITOVITZ, Benjamin, . "The core in imperfectly competitive economies," CORE Discussion Papers RP -1013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Raymond Deneckere & Michael Rothschild, 1986. "Monopolistic Competition and Preference Diversity," Discussion Papers 684, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Meade, James E, 1974. "The Optimal Balance between Economies of Scale and Variety of Products: An Illustrative Model," Economica, London School of Economics and Political Science, vol. 41(164), pages 359-67, November.
  20. Bonanno, Giacomo, 1988. "Oligopoly Equilibria When Firms Have Local Knowledge of Demand," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 45-55, February.
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Citations

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Cited by:
  1. Cohen-Zada, Danny & Justman, Moshe, 2012. "Affinity and tension between religious denominations: Evidence from private school enrolment," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 950-960.
  2. 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.
  3. Brown, W. Mark & Gu, Wulong & Baldwin, John R., 2008. "Geographic Market Access and the Effects of Trade on Length of Production Run, Product Diversity and Plant Scale of Canadian Manufacturing Plants, 1974 to 1999," Economic Analysis (EA) Research Paper Series 2008052e, Statistics Canada, Analytical Studies Branch.
  4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2011. "The Empirics of Firm Heterogeneity and International Trade," CEP Discussion Papers dp1084, Centre for Economic Performance, LSE.
  5. Head, Charles Keith & Mayer, Thierry & Ries, John, 2002. "On the Pervasiveness of Home Market Effects," CEPR Discussion Papers 3454, C.E.P.R. Discussion Papers.
  6. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
  7. Grossmann, Volker, 2007. "Firm size and diversification: Multiproduct firms in asymmetric oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 51-67, February.
  8. Canoy, Marcel & van Ours, Jan C. & van der Ploeg, Frederick, 2006. "The Economics of Books," Handbook of the Economics of Art and Culture, Elsevier.
  9. Combes, Pierre-Philippe & Duranton, Gilles, 2001. "Labour Pooling, Labour Poaching and Spatial Clustering," CEPR Discussion Papers 2975, C.E.P.R. Discussion Papers.

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