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

Ramon Caminal

No 5938, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Product diversity; Multiproduct firms; Monopolistic competition; Spatial models (search for similar items in EconPapers)
JEL-codes: D43 L12 L13 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-com and nep-mic
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