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Product switching, market power and distance to core competency

Author

Listed:
  • R. MONIN

    (Insee)

  • M. SUAREZ CASTILLO

    (Insee - Crest)

Abstract

Within-firm product switching is recognised as an important source of growth. We examine how portfolio dynamics is related to product market power, product efficiency and within-firm differentiation. We derive perproduct markup and marginal cost following De Loecker et al. (2016) on a large panel of French manufacturers over 2009-2017 and build three novel measures of product similarity. We find that selection based on performance is a leading driver of the performance gap between entrant and incumbent products. Markups are as important as marginal costs in explaining selection patterns. Our results suggest that firms renew their portfolio using trial and error and select the best performing products, closer to their core competency. However at the firm level, most of markup growth is accounted for by a reallocation toward best performing products, with a minor role for product entry and exit in the short run.

Suggested Citation

  • R. Monin & M. Suarez Castillo, 2020. "Product switching, market power and distance to core competency," Documents de Travail de l'Insee - INSEE Working Papers g2020-06, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2020-06
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zrjmq/f1.pdf
    File Function: Document de travail de la DESE numéro G2020/06
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    References listed on IDEAS

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    More about this item

    Keywords

    Multiproduct firms; Product dynamics; Product portfolio; Markups;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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