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Multiproduct firms and scope adjustment in globalization

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  • Qiu, Larry D.
  • Zhou, Wen

Abstract

A model of heterogeneous firms with variety-specific fixed costs is developed and analyzed to study how multiproduct firms respond to globalization. In contrast with most existing models, the analysis demonstrates that more-productive firms may expand their product scope, which in turn may push up their average costs. A necessary and sufficient condition for scope expansion is that the fixed cost of introducing more varieties increases rapidly with the product scope. With increasing globalization, the percentage of scope-expanding firms diminishes and eventually becomes zero.

Suggested Citation

  • Qiu, Larry D. & Zhou, Wen, 2013. "Multiproduct firms and scope adjustment in globalization," Journal of International Economics, Elsevier, vol. 91(1), pages 142-153.
    • Handle: RePEc:eee:inecon:v:91:y:2013:i:1:p:142-153
    DOI: 10.1016/j.jinteco.2013.04.006
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    More about this item

    Keywords

    Multiproduct firms; Globalization; Trade liberalization; Scope; Firm heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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