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Title: Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity

Author(s): Gianmarco Ottaviano and Jacques-François Thisse

Publication Date: May 1999

Keyword(s): Monopolistic Competition, Multiproduct Firms and Product Variety

Programme Area(s): Industrial Organization

Abstract: This paper tackles the issue of optimum product diversity in an imperfectly competitive market with small or large firms. First, it develops a quadratic utility model of monopolistic competition with horizontal product differentiation which avoids some of the main pitfalls of the S-D-S approach. Second, it extends the model to the case of multiproduct firms showing how product diversity is affected with respect to monopolistic competition. In particular, it is shown that monopolistic competition with single-product firms is the limiting case of oligopolistic competition with multiproduct firms when either varieties gets more and more differentiated or when the entry cost goes further and further down.

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Bibliographic Reference

Ottaviano, G and Thisse, J. 1999. 'Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2151