Munich Personal RePEc Archive

Product differentiation and systematic risk: theory and empirical evidence

Bazdresch, Santiago (2011): Product differentiation and systematic risk: theory and empirical evidence.

[img]
Preview
PDF
MPRA_paper_35504.pdf

Download (379Kb) | Preview

Abstract

Firms producing differentiated products have high margins and therefore low risk. As a result firms invest more into developing differentiated products when they perceive risk is high. Higher risk also implies higher product skewness towards more differentiated products and therefore higher average markups. The model predicts endogenous systematic and idiosyncratic riskiness as well as endogenous intensity of competition: firms in high risk industries reduce their riskiness by competing less than firms in low risk industries. Empirical evidence on product differentiation, R\&D expenses, B/M ratios, and market $\beta$ is consistent with the model.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.