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Eckel, Carsten; Neary, J. P. (2010): Multi-product firms and flexible manufacturing in the global economy. In: Review of Economic Studies, Vol. 77, No. 1: pp. 188-217

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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.

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