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Multi-product firms and business cycle dynamics

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  • Minniti, Antonio
  • Turino, Francesco

Abstract

Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for an important share of aggregate output. In the present paper, and consistent with this evidence, we relax the standard assumption of mono-product firms in a dynamic stochastic general equilibrium model. Our analysis is based on a model of firm dynamics with two deviations from the conventional real business cycle framework—imperfect competition with endogenous entry and multi-product firms. The combination of these two features enables our model to successfully generate a mechanism that accounts for the strong procyclicality of product creation. Due to the proliferation effect induced by firm-level adjustments in product scope, we show that our model embodies a quantitatively important magnification mechanism of aggregate shocks.

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  • Minniti, Antonio & Turino, Francesco, 2013. "Multi-product firms and business cycle dynamics," European Economic Review, Elsevier, vol. 57(C), pages 75-97.
    • Handle: RePEc:eee:eecrev:v:57:y:2013:i:c:p:75-97
    DOI: 10.1016/j.euroecorev.2012.10.008
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    2. Oscar Pavlov & Mark Weder, 2017. "Product Scope and Endogenous Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 175-191, March.
    3. Parenti, Mathieu, 2018. "Large and small firms in a global market: David vs. Goliath," Journal of International Economics, Elsevier, vol. 110(C), pages 103-118.
    4. Forslid, Rikard & Okubo, Toshihiro, 2023. "Trade, location, and multi-product firms," Regional Science and Urban Economics, Elsevier, vol. 100(C).
    5. Masashige Hamano & Keita Oikawa, 2022. "Multi-Product Establishments and Product Dynamics," Working Papers e168, Tokyo Center for Economic Research.
    6. Argente, David & Lee, Munseob & Moreira, Sara, 2018. "Innovation and product reallocation in the great recession," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 1-20.
    7. Etro, Federico & Rossi, Lorenza, 2015. "New-Keynesian Phillips curve with Bertrand competition and endogenous entry," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 318-340.
    8. Masashige Hamano & Francesco Zanetti, 2017. "Endogenous Turnover and Macroeconomic Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 263-279, October.
    9. Masashige Hamano, 2013. "On business cycles of variety and quality," DEM Discussion Paper Series 13-21, Department of Economics at the University of Luxembourg.
    10. Pavlov, Oscar, 2021. "Multi-product firms and increasing marginal costs," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    11. Pavlov, Oscar & Weder, Mark, 2022. "Endogenous product scope: Market interlacing and aggregate business cycle dynamics," European Economic Review, Elsevier, vol. 148(C).
    12. Minerva, Gaetano Alfredo, 2023. "The strategic proximity-concentration trade-off with multiproduct multinational firms," International Economics, Elsevier, vol. 174(C), pages 198-220.
    13. Wang, Wenya & Yang, Ei, 2023. "Multi-product firms and misallocation," Journal of Development Economics, Elsevier, vol. 163(C).
    14. Masashige Hamano & Francesco Zanetti, 2018. "On Quality and Variety Bias in Aggregate Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1343-1363, September.
    15. Etro, Federico & Rossi, Lorenza, 2015. "Optimal monetary policy under Calvo pricing with Bertrand competition," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 423-440.
    16. Lenno Uuskula, 2015. "Firm turnover and inflation dynamics," Bank of Estonia Working Papers wp2015-01, Bank of Estonia, revised 03 Feb 2015.
    17. David Argente & Munseob Lee & Sara Moreira, 2018. "How do Firms Grow? The Life Cycle of Products Matters," 2018 Meeting Papers 1174, Society for Economic Dynamics.
    18. Cellini, Roberto & Martorana, Marco Ferdinando & Platania, Felicita, 2014. "The multi-product nature of the firm in the arts sector: A case study on ‘Centro Zo’," MPRA Paper 60677, University Library of Munich, Germany.
    19. Diyue Guo, 2018. "Multiproduct Firms and the Business Cycle," 2018 Meeting Papers 1205, Society for Economic Dynamics.

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    More about this item

    Keywords

    Multi-product firms; Business cycles; Firm dynamics;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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