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Multi-product firms and increasing marginal costs

Citation

Pavlov, O, Multi-product firms and increasing marginal costs, Journal of Economic Dynamics and Control, 133 Article 104239. ISSN 0165-1889 (2021) [Refereed Article]


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DOI: doi:10.1016/j.jedc.2021.104239

Abstract

Recent literature has addressed how product creation amplifies economic fluctuations via the love of variety. Yet, the empirical evidence on variety effects is sparse. The current paper demonstrates that decreasing returns in the variety-level production technology, which leads to increasing marginal costs, similarly amplify business cycles. Product scope expansions reduce marginal costs and firms have an incentive to produce multiple products even if the variety effects are entirely absent. The efficiency gains from adjusting product scopes makes the economy more susceptible to sunspot equilibria. The indeterminate model is estimated via Bayesian methods and data favors the multi-product structure with animal spirits explaining a significant fraction of U.S. business cycles.

Item Details

Item Type:Refereed Article
Keywords:indeterminacy, sunspot equilibria, multi-product firms, business cycles, Bayesian estimation
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
UTAS Author:Pavlov, O (Dr Oscar Pavlov)
ID Code:147029
Year Published:2021
Deposited By:TSBE
Deposited On:2021-10-11
Last Modified:2021-11-01
Downloads:0

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