Product Choice and Product Switching

Andrew Bernard, Stephen Redding and Peter Schott

No 3959, CEPR Discussion Papers from Centre for Economic Policy Research

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 US 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.

Keywords: Heterogenous firms; Product differentiation; Sunk costs; Entry and exit (search for similar items in EconPapers)
JEL-codes: D21 L11 L60 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-com, nep-ent and nep-mic
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Product Choice and Product Switching (2005)
Working Paper: Product Choice and Product Switching (2003)
Working Paper: Product choice and product switching (2003)
Working Paper: Product Choice and Product Switching (2003)
Working Paper: Product Choice and Product Switching (2003)
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