The Nature of Competition and the Scope of Firms

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This paper examines how the scope of firms in an industry is affected by the nature of the competition in that industry. The main observation is that imperfectly competitive conduct introduces additional incentives (as compared to competition among price takers) to form multi-product firms. This is explained by the fact that imperfect competition often creates "excess capacities" which in turn induce the firms to expand into other markets.