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Entry Costs And Economies Of Scope In Multiproduct Firms' Decisions, Xosé-Luís Varela-Irimia

Xosé-Luís Varela-Irimia

This paper computes the scope economies associated to the commercialization of several product varieties by multiproduct firms, in a dynamic oligopoly setting. Goods are differentiated and firms decide on firm entry and exit, product entry and exit, quality and pricing. The model is applied to the Spanish automobile market. Results show moderate entry costs and substantial cost reductions when introducing a second product as compared to the first, indicating that multiproduct firms benefit from strong economies of scope when expanding their range of products. However, those economies disappear after five products have been introduced, suggesting a U-shaped curve for entry …