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Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity

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  • Ottaviano, Gianmarco
  • Thisse, Jacques-François

Abstract

This paper tackles the issue of optimum product diversity in an imperfectly competitive market with small or large firms. First, it develops a quadratic utility model of monopolistic competition with horizontal product differentiation which avoids some of the main pitfalls of the S-D-S approach. Second, it extends the model to the case of multiproduct firms showing how product diversity is affected with respect to monopolistic competition. In particular, it is shown that monopolistic competition with single-product firms is the limiting case of oligopolistic competition with multiproduct firms when either varieties gets more and more differentiated or when the entry cost goes further and further down.

Suggested Citation

  • Ottaviano, Gianmarco & Thisse, Jacques-François, 1999. "Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity," CEPR Discussion Papers 2151, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2151
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    2. Ushchev, Philip, 2017. "Multi-product firms in monopolistic competition: The role of scale-scope spillovers," Research in Economics, Elsevier, vol. 71(4), pages 675-689.
    3. John R. Baldwin & W. Mark Brown & Wulong Gu, 2012. "Geographic market access and the effects of trade on length of production run, product diversity and plant scale of Canadian manufacturing plants, 1974--1999," Journal of Economic Geography, Oxford University Press, vol. 12(2), pages 455-484, March.
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    5. Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
    6. 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, April.
    7. John Baldwin & Wulong Gu, 2009. "The Impact of Trade on Plant Scale, Production-Run Length and Diversification," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 557-592, National Bureau of Economic Research, Inc.
    8. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers 0862, Econometric Society.
    9. Chrysovalantou Milliou & Joel Sandonis, 2018. "Manufacturer Mergers and Product Variety in Vertically Related Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 1-24, March.
    10. Combes, Pierre-Philippe & Duranton, Gilles, 2006. "Labour pooling, labour poaching, and spatial clustering," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 1-28, January.
    11. Fabrice Darrigues, 2003. "Externalités de connaissance, équilibres spatiaux et bien-être," Economie & Prévision, La Documentation Française, vol. 157(1), pages 121-143.
    12. Nocco, Antonella & Ottaviano, Gianmarco I.P. & Salto, Matteo, 2017. "Monopolistic competition and optimum product selection: Why and how heterogeneity matters," Research in Economics, Elsevier, vol. 71(4), pages 704-717.
    13. Brambilla, Irene, 2009. "Multinationals, technology, and the introduction of varieties of goods," Journal of International Economics, Elsevier, vol. 79(1), pages 89-101, September.
    14. Cohen-Zada, Danny & Justman, Moshe, 2012. "Affinity and tension between religious denominations: Evidence from private school enrolment," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 950-960.
    15. Nisvan Erkal & Daniel Piccinin, 2006. "Horizontal Mergers with Free Entry in Differentiated Oligopolies," Department of Economics - Working Papers Series 976, The University of Melbourne.
    16. Davide Fantino, 2008. "R&D and market structure in a horizontal differentiation framework," Temi di discussione (Economic working papers) 658, Bank of Italy, Economic Research and International Relations Area.
    17. Grossmann, Volker, 2007. "Firm size and diversification: Multiproduct firms in asymmetric oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 51-67, February.
    18. Simon P. Anderson & Nisvan Erkal & Daniel Piccinin, 2020. "Aggregative games and oligopoly theory: short‐run and long‐run analysis," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 470-495, June.
    19. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    20. Grossmann, Volker, 2003. "Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium," IZA Discussion Papers 738, Institute of Labor Economics (IZA).
    21. Caminal, Ramon, 2006. "Too Many or Too Few Varieties? The Role of Multiproduct Firms," CEPR Discussion Papers 5938, C.E.P.R. Discussion Papers.
    22. 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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    More about this item

    Keywords

    Monopolistic Competition; Multiproduct Firms; Product Variety;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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