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Discussion Paper Details

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Title: Too Many or Too Few Varieties? The Role of Multiproduct Firms

Author(s): Ramon Caminal

Publication Date: November 2006

Keyword(s): monopolistic competition, multiproduct firms, product diversity and spatial models

Programme Area(s): Industrial Organization

Abstract: The goal of this paper is to examine the role of multiproduct firms in the market provision of product diversity. The analysis is conducted within the spatial model of nonlocalized competition proposed by Chen and Riordan (2006). It turns out that the effect of multiproduct firms on product diversity depends on the size distribution of firms. Under duopoly, product diversity is lower than under monopolistic competition. Nevertheless, the number of varieties can still be socially excessive. In contrast, if a large multiproduct firm (incumbent monopolist) competes against a large number of small (single product) firms then product diversity is higher than under monopolistic competition. Moreover, the incumbent firm is unable to monopolize the market and deter entry.

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Bibliographic Reference

Caminal, R. 2006. 'Too Many or Too Few Varieties? The Role of Multiproduct Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5938