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Title: Multi-Product Firms and Product Switching

Author(s): Andrew B. Bernard, Stephen J. Redding and Peter K. Schott

Publication Date: June 2006

Keyword(s): heterogeneous firms, product differentiation and product market entry and exit

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Bernard, A, Redding, S and Schott, P. 2006. 'Multi-Product Firms and Product Switching'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5708