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Multi-product Firms, R&D, and Growth

  • Minniti Antonio

    ()

    (CORE, UCL, Louvain-la-Neuve)

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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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 3 (December)
Pages: 1-46

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Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:3:n:4
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  1. Paul Allanson & Catia Montagna, 1999. "Multiproduct Firms and Market Structure: An Explorative Application to the Product Life Cycle," Dundee Discussion Papers in Economics 101, Economic Studies, University of Dundee.
  2. Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
  3. 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.
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