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Too Many or Too Few Varieties? The Role of Multiproduct Firms

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Author Info
Caminal, Ramón

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Abstract

The 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5938.

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Date of creation: Nov 2006
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Handle: RePEc:cpr:ceprdp:5938

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Related research
Keywords: monopolistic competition multiproduct firms product diversity spatial models

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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

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  1. 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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  4. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring. [Downloadable!] (restricted)
  5. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May. [Downloadable!] (restricted)
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  6. Bonanno, Giacomo, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 37-45, January. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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