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

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  • Ushchev, Philip

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.

Suggested Citation

  • Ushchev, Philip, 2017. "Multi-product firms in monopolistic competition: The role of scale-scope spillovers," Research in Economics, Elsevier, vol. 71(4), pages 675-689.
    • Handle: RePEc:eee:reecon:v:71:y:2017:i:4:p:675-689
    DOI: 10.1016/j.rie.2017.09.001
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    3. Dhingra, Swati & Morrow, John, 2017. "Efficiency in large markets with firm heterogeneity," Research in Economics, Elsevier, vol. 71(4), pages 718-728.

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    More about this item

    Keywords

    Multi-product firms; Imperfect competition; Economies of scope;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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