Too Many or Too Few Varieties? The Role of Multiproduct Firms
AbstractThe goal of this paper is to examine the role of multiproduct firms in the market provision of product diversity. The analysis is conducted within the spatial model of nonlocalized competition proposed by Chen and Riordan (2006). It turns out that the effect of multiproduct firms on product diversity depends on the size distribution of firms. Under duopoly, product diversity is lower than under monopolistic competition. Nevertheless, the number of varieties can still be socially excessive. In contrast, if a large multiproduct firm (incumbent monopolist) competes against a large number of small (single product) firms then product diversity is higher than under monopolistic competition. Moreover, the incumbent firm is unable to monopolize the market and deter entry.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5938.
Date of creation: Nov 2006
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-09 (All new papers)
- NEP-COM-2006-12-09 (Industrial Competition)
- NEP-MIC-2006-12-09 (Microeconomics)
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