Multiple-Product Firms and Product Switching

TLDR

The behavior observed aligns with a natural extension of industry‑dynamics theories that incorporate endogenous product selection within firms. This paper examines the frequency, pervasiveness, and determinants of product switching by U.S. manufacturing firms. The study finds that half of firms alter their five‑digit SIC product mix every five years, that switching correlates with firm and product attributes, that adding and dropping products cause large scope changes, and that switching reallocates resources toward more efficient use.

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)