Strategic Product Diversity

59 Pages Posted: 2 Dec 2019

See all articles by Nuno Clara

Nuno Clara

London Business School

Alexandre Corhay

University of Toronto - Rotman School of Management

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: November 16, 2019

Abstract

We document a decreasing pattern in product concentration within multi-product firms since the early 2000s. Larger firms are increasingly selecting a more diverse product range outside of their core competence. Expanding firm boundaries is closely intertwined with rising industry concentration as industry leaders are consolidating market power by growing horizontally through product creation. We build a general equilibrium model of multi-product firms featuring endogenously fluctuating firm and industry boundaries. External financing costs are quantitatively important for explaining the negative relation between product and industry concentration. The growing importance of the intra-firm extensive margin contributes to the aggregate productivity slowdown and declining trend in idiosyncratic volatility.

Keywords: Firm Boundary, Multi Product Firm, Asset Pricing, Imperfect Competition, Financial Frictions, Idiosyncratic Volatility, Productivity, Secular Trends

Suggested Citation

Clara, Nuno and Corhay, Alexandre and Kung, Howard, Strategic Product Diversity (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3488428

Nuno Clara

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Alexandre Corhay

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
4169780512 (Phone)

Howard Kung (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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