New Products

Measuring the welfare impact of new product introductions is a major, long-standing challenge for economists. In this study, we make progress on this problem by leveraging the informational efficiency of equity markets and a scalable consumer demand model. We use stock market reactions to new product announcements to estimate the profits that these new products are expected to generate for the inventor firms. We then use the network oligopoly model of Pellegrino (2025) to measure the change in competitors’ profits as well as consumer surplus induced by new products over a twenty-year period (2002-2021), thus obtaining the dollar welfare they generate. We find that: 1) new products introduced by U.S. publicly-traded firms generate substantial welfare
gains, around 0.2-0.4% of US yearly GDP; 2) a small minority of the announcements account for most of the gains; 3) producer surplus accounts for roughly 60% of these gains. This latter figure is significantly higher than for existing products: we show that this is due to the fact that new product creation is highly concentrated among firms that have a high degree of market power.