Bernard, Andrew B., 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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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)|
|Additional Information:||© 2003 Bernard, A and Redding, S. and Schott, P.|
|Uncontrolled Keywords:||heterogeneous firms, product differentiation, sunk costs, entry and exit|
|Library of Congress subject classification:||H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:||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
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