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Multi-Product Firms, R&D, and Growth

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  • Minniti, Antonio

Abstract

Multi-product firms dominate production activity in the global economy. There is widespread evidence showing that large corporations improve their efficiency by increasing the scale of their operations; this objective can be realized either by consistently investing in R&D or by expanding the product range. In this paper, we explore the implications of this fact by embedding multi-product firms in a General Equilibrium model of endogenous growth. We analyze an economy with oligopolistic firms that carry out in-house R&D programs in order to achieve cost-reducing innovations. Market structure is endogenous in the model and is jointly determined by the number of firms and the number of product varieties per firm. Both economies of scope and scale characterize the economic environment. We show that the market equilibrium involves too many firms (too much inter-firm diversity) and too few products per firm (too little intra-firm diversity); moreover, we find out that the total number of products and productivity growth are inefficiently low under laissez-faire. The nature of these distortions is discussed in detail.

Suggested Citation

  • Minniti, Antonio, 2006. "Multi-Product Firms, R&D, and Growth," MPRA Paper 2097, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2097
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    References listed on IDEAS

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    1. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-276, September.
    2. Simon P. Anderson & André De Palma, 2006. "Market Performance With Multiproduct Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 95-124, March.
    3. Allanson, Paul & Montagna, Catia, 2005. "Multiproduct firms and market structure: An explorative application to the product life cycle," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 587-597, September.
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    Cited by:

    1. Ramon Caminal & Lluís M. Granero, 2012. "Multi‐product Firms and Product Variety," Economica, London School of Economics and Political Science, vol. 79(314), pages 303-328, April.
    2. Latzer, Hélène, 2018. "A Schumpeterian theory of multi-quality firms," Journal of Economic Theory, Elsevier, vol. 175(C), pages 766-802.
    3. Hélène Latzer, 2016. "Beyond the Arrow effect: a Schumpeterian theory of multi-quality firms ," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01387266, HAL.
    4. Minniti, Antonio & Turino, Francesco, 2013. "Multi-product firms and business cycle dynamics," European Economic Review, Elsevier, vol. 57(C), pages 75-97.
    5. Hélène LATZER, 2013. "Beyond the Arrow effect: income distribution and multi-quality firms in a Schumpeterian framework," LIDAM Discussion Papers IRES 2013004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. Pedro Rui Mazeda Gil & Paulo Brito & Óscar Afonso, 2008. "A Model of Quality Ladders with Horizontal Entry," FEP Working Papers 296, Universidade do Porto, Faculdade de Economia do Porto.
    7. Lei JI, 2012. "Rethinking Directed Technical Change with Endogenous Market Structure," DEGIT Conference Papers c017_037, DEGIT, Dynamics, Economic Growth, and International Trade.
    8. Etro, Federico, 2008. "Growth leaders," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1148-1172, September.
    9. repec:lic:licosd:27711 is not listed on IDEAS
    10. Lei Ji, 2013. "Rethinking directed technical change with endogenous market structure," Documents de Travail de l'OFCE 2013-18, Observatoire Francais des Conjonctures Economiques (OFCE).
    11. Pietro Peretto & Michelle Connolly, 2007. "The Manhattan Metaphor," Journal of Economic Growth, Springer, vol. 12(4), pages 329-350, December.

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    More about this item

    Keywords

    imperfect competition; multi-product firms; endogenous growth; R&D;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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