Text-Based Network Industries and Endogenous Product Differentiation
69 Pages Posted: 9 Dec 2009 Last revised: 4 Jul 2015
Date Written: July 3, 2015
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
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