Journal Article

Multi-Product Firms and Flexible Manufacturing in the Global Economy

Carsten Eckel and J. Peter Neary

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 77, issue 1, pages 188-217
Published in print January 2010 | ISSN: 0034-6527
Published online January 2010 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2009.00573.x
Multi-Product Firms and Flexible Manufacturing in the Global Economy

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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.

Journal Article.  12921 words.  Illustrated.

Subjects: Economics

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