Multiproduct Firms: A Nested Logit Approach

This paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand. The demand model is parameterized by two variables that characterize different dimensions of preference for variety. These reflect intragroup heterogeneity and intergroup heterogeneity, a group (or nest) being the set of products produced by a firm. There are then two dimensions to market performance: the total number of firms and the range of products produced per firm. It is shown that the market equilibrium involves an excessive number of firms, but each firm provides too few products. Copyright 1992 by Blackwell Publishing Ltd.