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Mixed Market Structure, Competition and Market Size: How Does Product Mix Respond?

Aya Elewa ()
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Aya Elewa: Paris School of Economics

No 1245, Working Papers from Economic Research Forum

Abstract: Assuming a double heterogeneity; within industry firm heterogeneity and within firm product heterogeneity, this paper investigates how multiproduct firms respond to tougher competition and greater market size across destinations. Building a theoretical model where monopolistically competitive and oligopolistic firms coexist in the same market, the paper studies how an increase in market size affects both types of firms’ behavior. The model shows that the final impact of bigger market size on the product-mix of multiproduct firms depends on the level of fixed entry costs. For low level of entry costs, big firms increase their product-mix when they export to larger markets as they benefit from scope economies. Yet, when fixed costs are prohibitive, a larger market induces firms to skew their export sales toward their core product. Very strong confirmation of this non-monotonic effect of market size was found for Egyptian exporters across export market destinations.

New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-int
Date: 2018-10-28, Revised 2018-10-28
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Published by The Economic Research Forum (ERF)

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