The Quality Ladder and Product Variety: Larger Economies May Not Grow Faster

16 Pages Posted: 28 Jun 2004

See all articles by Koichi Futagami

Koichi Futagami

Osaka University - School of Economics

Yasushi Ohkusa

Osaka University - Institute of Social and Economic Research (ISER)

Abstract

This paper constructs an endogenous growth model that combines the quality ladder model and the variety expansion model. Firms enter an imitation race. After the imitation process, monopolistic competition prevails and a new innovation race begins. A successful firm, by inventing a higher quality product, can take over the entire market. However, the existence of a variety of products limits the price that the successful firm can charge. We show that the present model exhibits an inverted U-shape relationship between market size and growth rate. Relatively large and small economies grow slowly while medium-sized economies grow rapidly.

Suggested Citation

Futagami, Koichi and Ohkusa, Yasushi, The Quality Ladder and Product Variety: Larger Economies May Not Grow Faster. Available at SSRN: https://ssrn.com/abstract=544527

Koichi Futagami

Osaka University - School of Economics ( email )

1-7 Machikaneyama
Toyonaka
Osaka 560
Japan

Yasushi Ohkusa (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
81-6-6879-8555 (Phone)
81-6-6878-2766 (Fax)

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