Job Market Paper

Gains from Product Variety and the Local Business Cycle

Net product entry is procyclical, which amplifies fluctuations in consumer welfare over the cycle if consumers have love for variety. Using barcode-level data covering grocery expenditures in 26 major cities, I establish that differences in city-level product entry are largely uncorrelated with local economic conditions. I provide evidence that city-level changes in product variety over the business cycle are driven instead by multi-city retailers who introduce new products simultaneously in all cities in which they operate. This suggests that product introduction by multi-city retailers can propagate business cycle shocks. To quantify the impact of this mechanism, I develop a quantitative model of retailer product choice that relates the welfare gains from product entry in each city to demand growth in every other city. The model implies that the contribution of other cities' business cycle shocks to each city’s price level is proportional to the share of other cities in retailer revenue. Since the share of outside cities in retailer revenue is 63 percent in the average city, the impact of other cities' shocks on product entry is substantial. The presence of multi-city retailers makes net product entry more correlated across cities than they would be if retailers operated in only one city. In a counterfactual in which retailers do operate in only one city, the variation in gains from new product entry across cities would be 47 percent higher than in the baseline.

Other Working Papers

New Exporter Growth and Sequential Exporting

New exporters take a few years to catch up to the average total sales of all exporters. Using Colombian export data from 2007-2012, I show that catchup within individual export markets is considerably faster: intensive margin growth alone cannot explain the long catch-up period for total sales. The difference in relative performance between average total sales and average market sales is resolved by noting that new exporters enter disproportionately into the largest export markets. Experienced exporters that enter a new destination-industry exhibit lower-than-average sales, suggesting that firms adopt a sequential entry strategy. Previous research has proposed models in which the marginal cost of serving a particular export destination declines with experience in that margin. I show that a model in which exporters enter markets gradually as the result of extensive margin frictions fits the data better.