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Product Substitutability and Productivity Dispersion

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  • Chad Syverson

    (University of Chicago and NBER)

Abstract

Tremendous differences in producer productivity levels exist, even within narrowly defined industries. This paper explores the influence of product substitutability in an industry on this disparity. When consumers can easily switch between producers, inefficient (high-cost) producers cannot operate profitably. Thus high-substitutability industries should exhibit less productivity dispersion and have higher average productivity levels. I demonstrate this mechanism in a simple industry equilibrium model and test it empirically using producer-level data from 443 U.S. manufacturing industries. I find evidence that substitutability measured in several ways'is indeed negatively related to within-industry productivity dispersion and positively related to median productivity. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Chad Syverson, 2004. "Product Substitutability and Productivity Dispersion," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 534-550, May.
  • Handle: RePEc:tpr:restat:v:86:y:2004:i:2:p:534-550
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    References listed on IDEAS

    as
    1. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    2. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. F. Biesmans, 1977. "A Survey," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 48(1), pages 5-36, January.
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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L0 - Industrial Organization - - General

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