Product switching, market power and distance to core competency

Renouvellement des produits, pouvoir de marché et distance au produit

Rémi Monin and Milena Castillo
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Rémi Monin: INSEE - Institut national de la statistique et des études économiques (INSEE)
Milena Castillo: INSEE - Institut national de la statistique et des études économiques (INSEE)

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Abstract: Within-firm product switching is recognised as an important source of growth. We examine how portfolio dynamics is related to product market power, product efficiency and within-firm differentiation. We derive per- product markup and marginal cost following De Loecker et al. (2016) on a large panel of French manufacturers over 2009-2017 and build three novel measures of product similarity. We find that selection based on performance is a leading driver of the performance gap between entrant and incumbent products. Markups are as important as marginal costs in explaining selection patterns. Our results suggest that firms renew their portfolio using trial and error and select the best performing products, closer to their core competency. However at the firm level, most of markup growth is accounted for by a reallocation toward best performing products, with a minor role for product entry and exit in the short run.

Keywords: Markups; Product portfolio; Multiproduct firms; Product dynamics; Portefeuille de produits; Marges; Dynamique des produits; Firmes multiproduits (search for similar items in EconPapers)
Date: 2020-09
Note: View the original document on HAL open archive server: https://insee.hal.science/hal-05385892v1
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