Multiple-Product Firms and Product Switching
Andrew B. Bernard, Stephen J. Redding, Peter K. Schott
American Economic Review · 2010 · Volume 100 · Issue 1
Abstract
This paper examines the frequency, pervasiveness, and determinants of product switching by US manufacturing firms. We find that one-half of firms alter their mix of five-digit SIC products every five years, that product switching is correlated with both firm- and firm-product attributes, and that product adding and dropping induce large changes in firm scope. The behavior we observe is consistent with a natural generalization of existing theories of industry dynamics that incorporates endogenous product selection within firms. Our findings suggest that product switching contributes to a reallocation of resources within firms toward their most efficient use. (JEL L11, L21, L25, L60)
Keywords
Production, Pricing, and Market Structure, Size Distribution of Firms, Business Objectives of the Firm, Firm Performance: Size, Diversification, and Scope, Industry Studies: Manufacturing: General
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