Dundee Discussion Papers in Economics 101: Multiproduct firms and market structure: an explorative application to the product life cycle

We extend the standard Dixit-Stiglitz model of imperfect competition to allow for multiproduct firms. We fully endogenise market structure by determining both the number of varieties per firm and the number of firms in the industry. A crucial feature of the model is that firms internalise the effects of both intra- and inter-firm competition in making their product range and pricing decisions. The model is used to explore the proposition that shakeout in some industries may result from a shift from a fragmented market structure with many single-product firms to a concentrated equilibrium with a few large firms each offering many products.