Publication

This paper applies a theoretical econometric model of firm decision-making to German manufacturing industries. Feenstra and Ma developed a monopolistic competition model where firms choose their optimal product scope by balancing the profits from a new variety against the costs of "cannibalizing" sales of existing varieties. Feenstra and Ma conclude that there is an inverted U-shaped relationship between firms' productivities and the range of varieties they choose to produce. This empirical note takes this finding to the data for firms from German manufacturing industries. Empirical evidence is in line with the results from the theoretical model.