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Multiple-Product Firms and Product Switching

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  • Andrew B. Bernard
  • Stephen J. Redding
  • Peter K. Schott

Abstract

This paper examines the frequency, pervasiveness, and determinants of product switching by US 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 toward their most efficient use. (JEL L11, L21, L25, L60)

Suggested Citation

  • Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2010. "Multiple-Product Firms and Product Switching," American Economic Review, American Economic Association, vol. 100(1), pages 70-97, March.
    • Handle: RePEc:aea:aecrev:v:100:y:2010:i:1:p:70-97
    Note: DOI: 10.1257/aer.100.1.70
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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