Journal
JOURNAL OF INTERNATIONAL ECONOMICS
Volume 91, Issue 1, Pages 142-153Publisher
ELSEVIER
DOI: 10.1016/j.jinteco.2013.04.006
Keywords
Multiproduct firms; Globalization; Trade liberalization; Scope; Firm heterogeneity
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A model of heterogeneous firms with variety-specific fixed costs is developed and analyzed to study how multiproduct firms respond to globalization. In contrast with most existing models, the analysis demonstrates that more-productive firms may expand their product scope, which in turn may push up their average costs. A necessary and sufficient condition for scope expansion is that the fixed cost of introducing more varieties increases rapidly with the product scope. With increasing globalization, the percentage of scope-expanding firms diminishes and eventually becomes zero. (C) 2013 Elsevier B.V. All rights reserved.
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