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Multi-Product Firms, R&D, and Growth

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  • Minniti, Antonio

Abstract

Multi-product firms dominate production activity in the global economy. There is widespread evidence showing that large corporations improve their efficiency by increasing the scale of their operations; this objective can be realized either by consistently investing in R&D or by expanding the product range. In this paper, we explore the implications of this fact by embedding multi-product firms in a General Equilibrium model of endogenous growth. We analyze an economy with oligopolistic firms that carry out in-house R&D programs in order to achieve cost-reducing innovations. Market structure is endogenous in the model and is jointly determined by the number of firms and the number of product varieties per firm. Both economies of scope and scale characterize the economic environment. We show that the market equilibrium involves too many firms (too much inter-firm diversity) and too few products per firm (too little intra-firm diversity); moreover, we find out that the total number of products and productivity growth are inefficiently low under laissez-faire. The nature of these distortions is discussed in detail.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2097.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:2097

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Keywords: imperfect competition; multi-product firms; endogenous growth; R&D;

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  1. Simon P. Anderston & Andre de Palma, 1991. "Multiproduct Firms: A Nested Logit Approach," Discussion Papers 973, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  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.
  3. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
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Cited by:
  1. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, vol. 12(4), pages 329-350, December.
  2. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
  3. Helene LATZER, 2010. "Income inequalities and innovation by incumbents," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Lei Ji, 2013. "Rethinking directed technical change with endogenous market structure," Documents de Travail de l'OFCE 2013-18, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Ramon Caminal & Lluís M. Granero, 2012. "Multi‐product Firms and Product Variety," Economica, London School of Economics and Political Science, vol. 79(314), pages 303-328, 04.
  6. Pedro Rui Mazeda Gil & Paulo Brito & Óscar Afonso, 2008. "A Model of Quality Ladders with Horizontal Entry," FEP Working Papers 296, Universidade do Porto, Faculdade de Economia do Porto.

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