Working Paper: CEPR ID: DP5708
Authors: Andrew B. Bernard; Stephen J. Redding; Peter K. Schott
Abstract: This paper examines the frequency, pervasiveness and determinants of product switching among U.S. manufacturing firms. We find that two-thirds of firms alter their mix of five-digit SIC products every five years, that one-third of the increase in real U.S. manufacturing shipments between 1972 and 1997 is due to the net adding and dropping of products by survivors, and that firms are more likely to drop products which are younger and have smaller production volumes relative to other firms producing the same product. The product-switching behaviour we observe is consistent with an extended model of industry dynamics emphasizing firm heterogeneity and self-selection into individual product markets. Our findings suggest that product switching contributes towards a reallocation of economic activity within firms towards more productive uses.
Keywords: heterogeneous firms; product differentiation; product market entry; product market exit
JEL Codes: D21; E23; L11; L60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| product switching (L15) | aggregate growth in US manufacturing (L60) |
| net addition and dropping of products (C69) | increase in real US manufacturing shipments (L69) |
| product age and volume (L68) | likelihood of dropping a product (L15) |
| product characteristics (L15) | switching behavior (D91) |
| product switching (L15) | reallocation of resources within firms (D21) |
| two-thirds of firms (L20) | alter their mix of products every five years (L21) |