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Too Many or Too Few Varieties? The Role of Multiproduct Firms

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  • Caminal, Ramon

Abstract

The goal of this paper is to examine the role of multiproduct firms in the market provision of product diversity. The analysis is conducted within the spatial model of nonlocalized competition proposed by Chen and Riordan (2006). It turns out that the effect of multiproduct firms on product diversity depends on the size distribution of firms. Under duopoly, product diversity is lower than under monopolistic competition. Nevertheless, the number of varieties can still be socially excessive. In contrast, if a large multiproduct firm (incumbent monopolist) competes against a large number of small (single product) firms then product diversity is higher than under monopolistic competition. Moreover, the incumbent firm is unable to monopolize the market and deter entry.

Suggested Citation

  • Caminal, Ramon, 2006. "Too Many or Too Few Varieties? The Role of Multiproduct Firms," CEPR Discussion Papers 5938, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5938
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    References listed on IDEAS

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    1. Giacomo Bonanno, 1987. "Location Choice, Product Proliferation and Entry Deterrence," Review of Economic Studies, Oxford University Press, vol. 54(1), pages 37-45.
    2. Ottaviano, G.I.P. & Thisse, J.-F., 1999. "Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity," Economics Working Papers eco99/31, European University Institute.
    3. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
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    More about this item

    Keywords

    monopolistic competition; multiproduct firms; product diversity; spatial models;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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