New Products

Measuring the welfare impact of new product introductions is a long-standing challenge for economists. The paper presented in this Mannheim Applied Seminar makes progress on this problem by leveraging the informational efficiency of equity markets and a scalable consumer demand model. The authors construct a novel database of new product announcements covering 20 years (2002–2021) and use stock market reactions to estimate the profits that these new products generate for the innovating firms. The paper then uses the network oligopoly model of Pellegrino (2025) to measure the changes in competitors’ profits and consumer surplus induced by the new products, thus obtaining the welfare generated in dollar terms. The authors find that: (1) new products introduced by publicly traded U.S. firms generate substantial welfare gains, between 0.1% and 0.5% of U.S. GDP per year; (2) a minority of the announcements account for most of the gains; (3) new products generate sizable spillovers to other firms—negative for producers of substitute goods and, to a lesser extent, positive for producers of complements; and (4) producer surplus accounts for roughly 35% of these gains. This latter figure is significantly higher than for existing products. The paper shows that this is due to the fact that new product creation is concentrated among firms with a high degree of market power.