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Firm Size and Diversification: Asymmetric Multiproduct Firms under Cournot Competition

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  • Volker Grossmann

Abstract

A positive relationship between firm size and product diversification is a long-standing stylized fact. However, so far there is no appropriate theoretical model to explain the underlying forces of this observation. This paper analyzes an oligopoly model with asymmetric multiproduct frms, which is capable of addressing this issue. The model suggests that intangible assets of firms, which affect marginal costs or perceived quality of goods within a firm’s product line, play a key role for the empirical regularity that larger firms are more diversified.

Suggested Citation

  • Volker Grossmann, 2003. "Firm Size and Diversification: Asymmetric Multiproduct Firms under Cournot Competition," CESifo Working Paper Series 1047, CESifo.
    • Handle: RePEc:ces:ceswps:_1047
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    References listed on IDEAS

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    Cited by:

    1. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(1), pages 188-217.
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    3. X. Wang & Jingang Zhao, 2010. "Why are firms sometimes unwilling to reduce costs?," Journal of Economics, Springer, vol. 101(2), pages 103-124, October.
    4. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
    5. Simon P. Anderson & André De Palma, 2006. "Market Performance With Multiproduct Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 95-124, March.

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    Keywords

    asymmetric equilibrium; diversification; firm size; intangible assets; multiproduct firms;
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