Product redesigns happen across virtually all types of products. While there is substantial evidence that new varieties of goods increase welfare, there is little evidence on the effect of product redesigns. We employ a model of dynamic oligopoly following Bajari et al. (2007) to model redesign and exit decisions in the U.S. automobile market. We find that model designs become obsolete quickly in this market, leading to fairly frequent redesigns of automobile models despite an estimated average

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... redesign over $1 billion. We also find evidence that model redesign decisions are influenced by redesigns of competing models (what we term the "competitive effect"), such that eliminating this channel would lower redesign activity by about 25-45%. Overall, we find that redesigns lead to large increases in welfare, as well as substantial market power for firms, due to the strong preferences consumers display for new model designs. While our model and welfare simulations are focused on the new automobile market, we provide some evidence that the gains from redesigns in the new automobile market are an order of magnitude larger than the losses in the secondhand automobile market.