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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)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 1 (March)
Pages: 70-97

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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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  1. Gollop, Frank M & Monahan, James L, 1991. "A Generalized Index of Diversification: Trends in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 318-30, May.
  2. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
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  7. Jakob Klette & Samuel Kortum, 2002. "Innovating firms and aggregate innovation," Staff Report 300, Federal Reserve Bank of Minneapolis.
  8. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
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  11. Avner Shaked & John Sutton, 1990. "Multiproduct Firms and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 45-62, Spring.
  12. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  13. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
  14. Panzar, John C & Willig, Robert D, 1977. "Economies of Scale in Multi-Output Production," The Quarterly Journal of Economics, MIT Press, vol. 91(3), pages 481-93, August.
  15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  16. 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.
  17. Baumol, William J, 1977. "On the Proper Cost Tests for Natural Monopoly in a Multiproduct Industry," American Economic Review, American Economic Association, vol. 67(5), pages 809-22, December.
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