Multi-Product Firms and Product Switching
50 Pages Posted: 29 Jul 2009
Date Written: August 1, 2008
This paper examines the frequency, pervasiveness and determinants of product switching by U.S. manufacturing firms. We find that one-half of firms alter their mix of five-digit SIC products every five years, that product switching is correlated with both firm- and firm-product attributes, and that product adding and dropping induce large changes in firm scope. The behavior we observe is consistent with a natural generalization of existing theories of industry dynamics that incorporates endogenous product selection within firms. Our findings suggest that product switching contributes to a reallocation of resources within firms towards their most efficient use.
Keywords: Heterogeneous firms, Product differentiation, Product market entry and exit
JEL Classification: D21, E23, L11, L60
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