Quantifying the Sources of Firm Heterogeneity

Colin Hottman, Stephen Redding and David Weinstein

The Quarterly Journal of Economics, 2016, vol. 131, issue 3, 1291-1364

Abstract: We develop and structurally estimate a model of heterogeneous multiproduct firms that can be used to decompose the firm-size distribution into the contributions of costs, "appeal" (quality or taste), markups, and product scope. Using Nielsen barcode data on prices and sales, we find that variation in firm appeal and product scope explains at least four fifths of the variation in firm sales. We show that the imperfect substitutability of products within firms, and the fact that larger firms supply more products than smaller firms, implies that standard productivity measures are highly dependent on implicit demand system assumptions and probably dramatically understate the relative productivity of the largest firms. Although most firms are well approximated by the monopolistic competition benchmark of constant markups, we find that the largest firms that account for most of aggregate sales depart substantially from this benchmark, and exhibit both variable markups and substantial cannibalization effects. JEL Codes: L11, L21, L25, L60.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (243)

Downloads: (external link)
http://hdl.handle.net/10.1093/qje/qjw012 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Quantifying the Sources of Firm Heterogeneity (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:qjecon:v:131:y:2016:i:3:p:1291-1364.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().