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Multi-product firms in monopolistic competition: The role of scale-scope spillovers

Philip Ushchev ()

Research in Economics, 2017, vol. 71, issue 4, 675-689

Abstract: We develop a monopolistic competition model where firms are multi-product, and the elasticity of substitution on the consumption side is variable. The cost function, otherwise very general, is such that expanding firm-level product range (scope) reduces marginal costs of production of existing varieties. This captures scale-scope spillovers, i.e. within-firm spillovers between the scale at which firms operate and their choices of scope. Firm-level product ranges and the mass of firms are endogenously determined. We show how an increase in market size affects the market outcome. A larger market leads to lower prices, larger outputs, and a wider industry-level product range. Firm-level product ranges expand (shrink) under sufficiently strong (weak) scale-scope spillovers. Last, under strong (weak) spillovers, the number of firms increases less (more) than proportionally to the market size.

Keywords: Multi-product firms; Imperfect competition; Economies of scope (search for similar items in EconPapers)
JEL-codes: L11 F12 F15 (search for similar items in EconPapers)
Date: 2017
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