Firm Product Concentration and Asset Prices
62 Pages Posted: 2 Dec 2019 Last revised: 23 Aug 2021
Date Written: August 21, 2021
Average product concentration within firms has been declining since the mid-2000s. We find that lower product concentration is associated with lower productivity, expected returns, and idiosyncratic volatility across firms. These empirical relations are explained in a general equilibrium model of multiproduct firms with endogenous firm boundaries. Parameters governing the flexible production technology are identified using the GIV approach of Gabaix and Koijen (2020) by exploiting fat tails in the distribution of product mix. Overall, this paper highlights the importance of firm boundaries for explaining asset prices and firm dynamics.
Keywords: Firm Boundary, Multi Product Firm, Asset Pricing, Imperfect Competition, Financial Frictions, Idiosyncratic Volatility, Productivity, Secular Trends
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