A Model of Multiproduct Firm Growth

Bingchao Huangfu ()
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Bingchao Huangfu: Institute for Social and Economic Research, Nanjing Audit University, P. R. China

International Game Theory Review (IGTR), 2021, vol. 23, issue 01, 1-29

Abstract: This paper studies optimal growth strategies of a multiproduct firm that invests in the qualities of different products, which have persistent effects on future payoffs and are modeled as a state variable of a stochastic game. We derive a unique Markov perfect equilibrium under a monotonicity condition. At the early stage, the firm focuses on the product with higher quality, and may switch its specialization. If the quality of the specialized good is high enough, the firm diversifies to capture demands for all products. However, the firm may lose its focus on either product and get no demand, due to a moral hazard problem.

Keywords: Firm dynamics; stochastic games; Markov perfect equilibrium; specialization; diversification; moral hazard (search for similar items in EconPapers)
JEL-codes: B21 C73 D21 L2 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S0219198920500127

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