Multi-product firms and increasing marginal costs

Oscar Pavlov

    Research output: Contribution to journalArticle

    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.
    Original languageEnglish
    Pages (from-to)18pp
    JournalJournal of Economic Dynamics and Control
    Volume133
    DOIs
    Publication statusPublished - 2021

    Fingerprint

    Dive into the research topics of 'Multi-product firms and increasing marginal costs'. Together they form a unique fingerprint.

    Cite this