Hottman, C., Redding, S. & Weinstein, E. D. (2014) “The sources of firms’ success“, VoxEU Organisation, 14 Οκτωβρίου.
Recent research highlights that important factors for firm size are costs, quality, markups, and product scope. This column explores the sources that make these factors differ across firms. Quality and in particular, variation in the product scope, is the chief determinant of firm sales. Marginal cost variations do not matter much for firm size.
Why are some firms larger than others? Some companies, such as the Coca-Cola Corporation, generate billions of dollars of sales and dominate the markets in which they operate. Other companies account for only a small fraction of the sales of their larger competitors. What accounts for these vast differences in firm performance?
Answering this question is important for quantifying equilibrium models of firm heterogeneity developed in the recent trade and macro literatures and for understanding the relationship between microeconomic firm performance and macroeconomic outcomes. Recent research on firm heterogeneity in trade and macroeconomics (e.g. Melitz 2003, Feenstra 2014, Manova and Zhang 2012) points to four components of firm heterogeneity: Costs, quality, markups, and product scope (i.e., the number of products produced by firms). Unfortunately, the state of the economics literature in understanding the role played by these factors in determining firm size is akin to the state of the productivity literature before Solow (1957); we know what forces matter for firm size, but we have no general and easily implementable accounting framework for understanding the sources of these differences.
Recent research on sources of firm success
In Hottman et al. (2014), we develop a structural model that can be used to decompose the firm-size distribution into the relative contributions of each of these components. We implement our model-based decomposition for the just over 50,000 firms that supply goods with barcodes in the Nielsen HomeScan Database in a typical quarter. This decomposition enables us to isolate different margins in the data without making assumptions about how these margins are related to one another (as in the business cycle decomposition of Chari et al. 2007 in the macroeconomics literature). Our framework requires only price and expenditure data and, hence, is widely applicable.
Σχετικές αναρτήσεις:
- Krishnan, K., Nandy, D. & Puri, M. (2014) “Small business productivity and access to financing“, VoxEU Organisation, 26 Σεπτεμβρίου.
- Mohrenweiser, J. & Pfeiffer, F. (2014) “Coaching Disadvantaged Young People: Evidence from Firm Level Data“, ZEW Discussion Paper No. 14-054, Centre for European Economic Research, Αύγουστος.
- O’Toole, C., Kay, N., Murphy, G. & Siedschlag, I. (2014) “EU firms’ access to external financing“, VoxEU Organisation, 29 Ιουνίου.