The impact of market size on multi-product firms' concentration in a monopolistic competition model

We propose a model of monopolistic copmpetition with multi-product firms, non-convex costs and variable elasticity of substitution. We study the impact of market size on industrial concentration of firms. The main result is a full characterization of asymptotic behavior of equilibrium number of firms and level of concentration when the market size unboundedly increases. It is shown that the interaction between economies of scale and economies of scope is a key-factor for the tendency to increasing firms' concentration on growing markets, which is empirically observed in many industries. We also study the impact of technological shocks on industrial concentration by means of simulations.