Abstract
I estimate consumer welfare gains from the entry of new products in the Swedish market for light lager beers by estimating a structural demand model using bar-code level data provided by the Swedish alcohol retail monopoly. Following Ackerberg and Rysman (2005), I explicitly allow for crowding in the product space as new varieties enter. I find strong evidence for crowding effects. My results suggest that consumers do not value new goods per se; the love-for-variety effect is absent. Further inspection of the entering and exiting products suggests that entrants on average provide consumers with higher utility than exiting lagers. In a methodological contribution, I show that following the commonly accepted practice of determining the relevant market outside of the demand estimation can be misleading. A positive correlation between net entry and total consumer welfare can simply be spurious and does not necessarily imply that entry raises welfare. My findings regarding the benefits of new varieties are robust to this concern.