How do Firms Grow? The Life Cycle of Products Matters (with David Argente and Sara Moreira)

We exploit detailed product- andrm-level data to study the size ofrms and products

over their life cycles. We build a dataset that contains information on the product

portfolio of eachrm in the consumer goods sector over the period 2006{2015. We

document that, with the exception of therst few quarters, sales of products decline

at a steady pace throughout most of their life cycle. These dynamics are robust across

very heterogenous types of products, and contrast with the prole ofrms, which grow

throughout most of their life cycle. Motivated by these results, we create a statistical

framework ofrm growth as a function of the vintages of products. Using this de-

composition we quantify, for young and maturerms, the importance of new product

introduction (both the intensive and extensive margins) and the impact of decreasing

sales of older vintages. Wend thatrms must grow by continuously adding products

that generate suciently large revenue in order to compensate the reduction in revenue

accruing from previous vintages of products. We structurally estimate a model of het-

erogeneous multiproductrms and decompose sales over the life cycle of the product to

understand the mechanisms behind their decline. Our results indicate that demand-side

factors are behind the decline in sales of products and are consistent with preferences

for newer vintages of products.