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Product Choice and Product Switching

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  • Stephen Redding
  • Andrew Bernard
  • Peter Schott

Abstract

This paper develops a model of endogenous product selection within industries by firms. The model is motivated by new evidence we present on the prevalence and importance of product changing activity by U.S. manufacturers. Three-fifths of continuing firms alter their product mix within an industry every five years, and added and dropped products account for a substantial portion of firm output. In the model, firms make decisions about both industry entry and product choice. Product choice is shaped by the interaction of heterogeneous firm characteristics and diverse product attributes. Changes in market conditions within an industry result in simultaneous adjustment along a number of margins, including both entry/exit and product choice.

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File URL: ftp://ftp2.census.gov/ces/wp/2005/CES-WP-05-22.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 05-22.

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Length: 36 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cen:wpaper:05-22

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Keywords: Product selection; heterogeneous firms; product differentiation; sunk entry costs;

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