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Measuring the Benefits of Product Variety with an Accurate Variety Set

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  • Bruce A. Blonigen
  • Anson Soderbery

Abstract

Recent studies have used import data to assess the impact of foreign varieties on prices and welfare for a home country. The reliance on import data has a number of limitations. First, these papers rely on goods categories defined by the Harmonized System. Second, they define varieties using the Armington assumption that all imports coming from a particular country are one unique variety. Third, they ignore variety changes that may occur through foreign affiliate activity. In this paper, we revisit this literature by employing a detailed market-based data set on the U.S. automobile market that allows us to define goods varieties at a more precise level, as well as discern location of production and ownership of varieties. We show that estimated variety changes and their impacts on U.S. prices and welfare differ markedly for automobiles depending on whether one uses the standard import data or our more detailed market-based data. The import data and Armington assumption hide significant net variety change leading to a downward bias in the effects of net variety change, with implied welfare benefits only half what we find with our market-based data. We also show that the welfare gains from all foreign-owned varieties (both imported and from foreign affiliates) are well over 50% larger than that stemming from imported varieties alone.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14956.

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Date of creation: May 2009
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Publication status: published as Journal of International Economics Volume 82, Issue 2, November 2010, Pages 168–180 Cover image Measuring the benefits of foreign product variety with an accurate variety set ☆ Bruce A. Blonigena, Corresponding author contact information, E-mail the corresponding author, Anson Soderberyb, E-mail the corresponding author
Handle: RePEc:nbr:nberwo:14956

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  1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 121(2), pages 541-585, May.
  2. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 9(4), pages 469-479, November.
  3. Pinelopi K. Goldberg & Frank Verboven, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," NBER Working Papers, National Bureau of Economic Research, Inc 8402, National Bureau of Economic Research, Inc.
  4. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 891-951, July.
  5. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  6. Jean Imbs & Isabelle Mejean, 2008. "Elasticity Optimism," EIEF Working Papers Series, Einaudi Institute for Economics and Finance (EIEF) 0805, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2008.
  7. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(4), pages 705-729, August.
  8. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 157-77, March.
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Cited by:
  1. Mohler, Lukas & Seitz, Michael, 2010. "The Gains from Variety in the European Union," Discussion Papers in Economics, University of Munich, Department of Economics 11477, University of Munich, Department of Economics.
  2. Benjamin Bridgman, 2010. "Market Entry and Trade Weighted Import Costs," BEA Working Papers, Bureau of Economic Analysis 0067, Bureau of Economic Analysis.
  3. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
  4. Mohler, Lukas, 2009. "Globalization and the gains from variety: size and openness of countries and the extensive margin," MPRA Paper, University Library of Munich, Germany 17592, University Library of Munich, Germany.

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