Measuring the Benefits of Product Variety with an Accurate Variety Set

Recent studies have used import data to assess the impact of foreign varieties on prices and welfare for a home country. The reliance on import data has a number of limitations. First, these papers rely on goods categories defined by the Harmonized System. Second, they define varieties using the Armington assumption that all imports coming from a particular country are one unique variety. Third, they ignore variety changes that may occur through foreign affiliate activity. In this paper, we revisit this literature by employing a detailed market-based data set on the U.S. automobile market that allows us to define goods varieties at a more precise level, as well as discern location of production and ownership of varieties. We show that estimated variety changes and their impacts on U.S. prices and welfare differ markedly for automobiles depending on whether one uses the standard import data or our more detailed market-based data. The import data and Armington assumption hide significant net variety change leading to a downward bias in the effects of net variety change, with implied welfare benefits only half what we find with our market-based data. We also show that the welfare gains from all foreign-owned varieties (both imported and from foreign affiliates) are well over 50% larger than that stemming from imported varieties alone.

Data for: Market size, structure, and access: Trade with capacity constraints

Abstract of associated article: This paper develops a model of international trade where firms are heterogeneous across capacity and productivity. A binding capacity constraint induces firms to raise prices in order to take advantage of access to new markets. This generates markets with a flexible competitive structure giving rise to instances where trade and trade liberalization negatively impact welfare. Its key predictions can be identified by observing the presence of small yet highly productive firms and substitution by firms across markets as accessibility evolves. Using Thai firm-level data I establish the prevalence of these anomalous firms and demonstrate they face capacity constraints

Grant Soderbery JIE Replication

The attached files and folders fully replicate Grant and Soderbery (2024) in the JIE. The included replication_instructions.pdf outlines the necessary steps to follow for replication.THIS DATASET IS ARCHIVED AT DANS/EASY, BUT NOT ACCESSIBLE HERE. TO VIEW A LIST OF FILES AND ACCESS THE FILES IN THIS DATASET CLICK ON THE DOI-LINK ABOV

Measuring the benefits of foreign product variety with an accurate variety set

Recent studies have used import data to assess the impact of foreign varieties on domestic prices and welfare. We employ a market-based data set on the U.S. automobile market that allows us to define goods varieties at a more precise level, as well as discern location of production and ownership of varieties. Our estimates of price and welfare changes from new varieties in the U.S. automobile sector are twice as large as standard estimates when using our detailed market-based data. We also show that new varieties introduced by foreign-owned affiliates provided an additional 70% welfare gain during our sample.Product variety Trade Armington Monopolistic competition Automobiles

Keeping it fresh: Strategic product redesigns and welfare

Product redesigns happen across virtually all types of products, yet there is little evidence on the market and welfare effects of redesigns. We develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the U.S. automobile market. We find automobile model redesigns are frequent despite an estimated average cost around $1 billion. Our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns. We show that welfare would be improved if redesign competition were reduced, allowing redesign activity to be more responsive to the planned obsolescence channel. The net effect of these changes would reduce total redesigns by roughly 10%, increasing total welfare by roughly 3%. The high valuation that consumers put on newly-designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power, with a 2-to-1 ratio of firm profits to consumer surplus