Text-Based Network Industries and Endogenous Product Differentiation

Hoberg, Gerard; Phillips, Gordon M.

doi:10.2139/ssrn.1520062

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Text-Based Network Industries and Endogenous Product Differentiation

Journal of Political Economy, Forthcoming

69 Pages Posted: 9 Dec 2009 Last revised: 4 Jul 2015

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: July 3, 2015

Abstract

We study how firms differ from their competitors using new time-varying measures of product similarity based on text-based analysis of firm 10-K product descriptions. This year-by-year set of product similarity measures allows us to generate a new set of industries where firms can have their own distinct set of competitors. Our new sets of competitors explain specific discussion of high competition, rivals identified by managers as peer firms and changes to industry competitors following exogenous industry shocks. We also find evidence that firm R&D and advertising are associated with subsequent differentiation from competitors, consistent with theories of endogenous product differentiation.

Keywords: Industry Classifications, Endogenous Barriers to Entry, Product Market Competition, Product Differentiation

Suggested Citation: Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Text-Based Network Industries and Endogenous Product Differentiation (July 3, 2015). Journal of Political Economy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1520062 or http://dx.doi.org/10.2139/ssrn.1520062