Multi-Product Firms, R&D, and Growth
AbstractMulti-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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2097.
Date of creation: 2006
Date of revision:
imperfect competition; multi-product firms; endogenous growth; R&D;
Other versions of this item:
- E0 - Macroeconomics and Monetary Economics - - General
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-COM-2007-03-17 (Industrial Competition)
- NEP-CSE-2007-03-17 (Economics of Strategic Management)
- NEP-INO-2007-03-17 (Innovation)
- NEP-IPR-2007-03-17 (Intellectual Property Rights)
- NEP-MIC-2007-03-17 (Microeconomics)
- NEP-PPM-2007-03-17 (Project, Program & Portfolio Management)
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