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American Economic Review: Vol. 100 No. 1 (March 2010)

AER Volume. 100, Issue 1 | Previous ArticleNext Article

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Multiple-Product Firms and Product Switching

Article Citation

Bernard, Andrew B., Stephen J. Redding, and Peter K. Schott. 2010. "Multiple-Product Firms and Product Switching." American Economic Review, 100(1): 70-97.

DOI: 10.1257/aer.100.1.70

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)

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Authors

Bernard, Andrew B. (Dartmouth College)
Redding, Stephen J. (London School of Economics)
Schott, Peter K. (Yale U)

JEL Classifications

L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L21: Business Objectives of the Firm
L25: Firm Performance: Size, Diversification, and Scope
L60: Industry Studies: Manufacturing: General