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Product choice and product switching

Bernard, Andrew B. and Redding, Stephen and Schott, Peter K. (2003) Product choice and product switching. 594. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 594

Abstract

This paper develops a model of endogenous product selection by firms. The theory is motivated by new evidence we present on the importance of product switching by U.S. manufacturers. Two-thirds of continuing firms change their product mix every five years, and product switches involve more than 40% of firm output and almost half of existing products. The theoretical model incorporates heterogeneous firms, heterogeneous products, and ongoing entry and exit. In equilibrium, firm productivity is correlated with product fixed costs, with the most productive firms choosing to make the products with the highest fixed costs. Changes in market structure result in systematic patterns of firm entry/exit and product switching.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2003 Bernard, A and Redding, S. and Schott, P.
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
JEL classification: L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General
D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 05 Mar 2008 10:11
Last Modified: 01 Oct 2010 08:50
URI: http://eprints.lse.ac.uk/id/eprint/3672

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