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Market Performance With Multiproduct Firms

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  • Simon P. Anderson
  • André de Palma

Abstract

We revisit the fundamental issue of market provision of variety associated with Chamberlin, Spence, and Dixit and Stiglitz when firms sell several products. Both products and firms are envisaged as di?erentiated. We propose a nested demand model where consumers decide upon a firm then which variant to buy, and use it to determine the market’s biases when firms compete in product ranges and prices. The market system attracts too many firms with too few products per firm: firms restrain product ranges to relax price competition, but this exacerbates overentry. The results extend to generalized nested CES models.

Suggested Citation

  • Simon P. Anderson & André de Palma, 2003. "Market Performance With Multiproduct Firms," Virginia Economics Online Papers 357, University of Virginia, Department of Economics.
    • Handle: RePEc:vir:virpap:357
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    References listed on IDEAS

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    Cited by:

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    3. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.
    4. 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.
    5. Chrysovalantou Milliou & Joel Sandonis, 2018. "Manufacturer Mergers and Product Variety in Vertically Related Markets," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 1-24, March.
    6. Richards, Timothy J. & Hamilton, Stephen F. & Patterson, Paul M., 2010. "Spatial Competition and Private Labels," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(2), pages 1-26, August.
    7. Maican, Florin & Orth, Matilda, 2021. "Determinants of economies of scope in retail," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    8. Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2017. "Privatization of state holding corporations," Journal of Economics, Springer, vol. 120(2), pages 171-188, March.
    9. Torben Stühmeier, 2019. "Media market concentration and pluralism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(2), pages 247-259, April.
    10. Levent Kutlu & Alper Nakkas, 2018. "Strategic Product Line Choice Under Asymmetric Demand Structure," The Japanese Economic Review, Springer, vol. 69(3), pages 347-359, September.
    11. Lorz Oliver & Wrede Matthias, 2009. "Trade and Variety in a Model of Endogenous Product Differentiation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-14, November.
    12. Caminal, Ramon, 2006. "Too Many or Too Few Varieties? The Role of Multiproduct Firms," CEPR Discussion Papers 5938, C.E.P.R. Discussion Papers.
    13. Polykarpos Pavlidis & Paul B. Ellickson, 2017. "Implications of parent brand inertia for multiproduct pricing," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 369-407, December.
    14. Meunier, Guy & Ponssard, Jean-Pierre, 2020. "Optimal policy and network effects for the deployment of zero emission vehicles," European Economic Review, Elsevier, vol. 126(C).
    15. George Symeonidis, 2009. "Asymmetric Multiproduct Firms, Profitability And Welfare," Bulletin of Economic Research, Wiley Blackwell, vol. 61(2), pages 139-150, April.
    16. Melo, Emerson, 2012. "A representative consumer theorem for discrete choice models in networked markets," Economics Letters, Elsevier, vol. 117(3), pages 862-865.
    17. Izak Atiyas & Toker Doganoglu & Firat Inceoglu, 2021. "Upstream Competition with Complex and Unobservable Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 399-429, May.

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    More about this item

    Keywords

    Multiproduct firms; excess variety; nested demand; product line competition;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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