MARKET PERFORMANCE WITH MULTIPRODUCT FIRMS

Simon Anderson () and André de Palma ()

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: We revisit the fundamental issue of market provision of variety associated with Chamberlin, Spence, and Dixit and Stiglitz when firms sell several products. Both products and firms are envisaged as di?erentiated. We propose a nested demand model where consumers decide upon a firm then which variant to buy, and use it to determine the market’s biases when firms compete in product ranges and prices. The market system attracts too many firms with too few products per firm: firms restrain product ranges to relax price competition, but this exacerbates overentry. The results extend to generalized nested CES models.

Keywords: Multiproduct firms; excess variety; nested demand; product line competition (search for similar items in EconPapers)
JEL-codes: L11 L13 D43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: Written
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