Text-Based Network Industries and Endogenous Product Differentiation

2016/09/01 by Gerard Hoberg, Gordon Phillips, Gordon M. Phillips · 23 citations
Business, Management and Accounting · #Digital Platforms and Economics #Corporate Finance and Governance #International Business and FDI

paper · doi:10.1086/688176

Abstract

We study how firms differ from their competitors using new time-varying measures of product similarity based on text-based analysis of firm 10-K product descriptions. This year-by-year set of product similarity measures allows us to generate a new set of industries in which firms can have their own distinct set of competitors. Our new sets of competitors explain specific discussion of high competition, rivals identified by managers as peer firms, and changes to industry competitors following exogenous industry shocks. We also find evidence that firm R&D and advertising are associated with subsequent differentiation from competitors, consistent with theories of endogenous product differentiation.

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