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Product Choice and Product Switching

Author

Listed:
  • Andrew B. Bernard

    (Tuck School of Business)

  • Stephen J. Redding

    (London School of Economics & Political Science (LSE))

  • Peter K. Schott

    (School of Management)

Abstract

This paper develops a model of endogenous product selection by firms. The theory is motivated by new evidence we present on the importance of product switching by U.S. manufacturers. Two-thirds of continuing firms change their product mix every five years, and product switches involve more than 40% of firm output and almost half of existing products. The theoretical model incorporates heterogeneous firms, heterogeneous products, and ongoing entry and exit. In equilibrium, firm productivity is correlated with product fixed costs, with the most productive firms choosing to make the products with the highest fixed costs. Changes in market structure result in systematic patterns of firm entry/exit and product switching.

Suggested Citation

  • Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2003. "Product Choice and Product Switching," Yale School of Management Working Papers ysm381, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm381
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    References listed on IDEAS

    as
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    Cited by:

    1. Pinelopi K Goldberg & Amit K Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Multiproduct Firms and Product Turnover in the Developing World: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 1042-1049, November.
    2. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    3. Kalina Manova & Zhiwei Zhang, 2008. "China's exporters and importers: firms, products, and trade partners," Working Paper Series 2008-28, Federal Reserve Bank of San Francisco.
    4. Eric Brouillat, 2015. "Live fast, die young? Investigating product life spans and obsolescence in an agent-based model," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 447-473, April.
    5. Eric BROUILLAT, 2011. "Durability of consumption goods and market competition: an agent-based modelling," Cahiers du GREThA (2007-2019) 2011-31, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    6. Cheung, Cherry & Coucke, Kristien & Neicu, Daniel, 2011. "A Decision Tree as a Quick Scan for Effective Market Functioning," Working Papers 2011/06, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    7. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    8. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts, 2003. "Entrant Experience and Plant Exit," NBER Working Papers 10133, National Bureau of Economic Research, Inc.
    9. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1727-1767.
    10. Atsushi Kawakami & Tsutomu Miyagawa, 2013. "Product Switching and Firm Performance in Japan - Empirical Analysis Based on the Census of Manufacturers," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(2), pages 287-314, March.
    11. David Greenaway & Joakim Gullstrand & Richard Kneller, 2009. "Live or Let Die? Alternative Routes to Industry Exit," Open Economies Review, Springer, vol. 20(3), pages 317-337, July.
    12. Baldwin, John R. Lileeva, Alla, 2008. "Adapting to Import Competition: Effects of Low-wage Trade on Commodity Mix in Canadian Manufacturing Plants," Economic Analysis (EA) Research Paper Series 2008054e, Statistics Canada, Analytical Studies Branch.
    13. Greenaway, David & Gullstrand, Joakim & Kneller, Richard, 2008. "Surviving globalisation," Journal of International Economics, Elsevier, vol. 74(2), pages 264-277, March.
    14. Baldwin, John R. Lileeva, Alla, 2008. "Adaptation à la concurrence des importations : effets du commerce avec les pays à bas salaires sur le portefeuille de produits des établissements manufacturiers canadiens," Série de documents de recherche sur l'analyse économique (AE) 2008054f, Statistics Canada, Direction des études analytiques.
    15. Edward L. Glaeser & William R. Kerr, 2009. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 623-663, September.
    16. Carlos Henrique Corseuil & Hidehiko Ichimura, 2006. "New Evidences on What Job Creation and Job Destruction Represent," Discussion papers 06023, Research Institute of Economy, Trade and Industry (RIETI).
    17. repec:lic:licosd:20408 is not listed on IDEAS
    18. Dunne, Timothy & Klimek, Shawn D. & Roberts, Mark J., 2005. "Exit from regional manufacturing markets: The role of entrant experience," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 399-421, June.

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    More about this item

    Keywords

    Heterogeneous Firms; Product Differentiation; Sunk Costs; Entry and Exit;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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