Journal
REVIEW OF ECONOMIC STUDIES
Volume 77, Issue 1, Pages 188-217Publisher
WILEY-BLACKWELL PUBLISHING, INC
DOI: 10.1111/j.1467-937X.2009.00573.x
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We present a new model of multi-product firms (MPFs) and flexible manufacturing, and explore its implications in partial and general oligopolistic equilibrium. Globalization affects the scale and scope (or intensive margin and intra-firm extensive margin) of MPFs through a competition effect and a demand effect. The model highlights a new source of gains from trade: productivity increases as firms become leaner and meaner, concentrating on their core competence; but also a new source of losses from trade: product variety may fall. Our results also hold under free entry, which allows in addition for adjustment along the traditional inter-firm extensive margin.
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