Customer accumulation, returns to scale, and secular trends

Working paper

This paper studies how rising returns to scale contributed to declining business dynamism and increasing markups and expenditures devoted to customer acquisition in the U.S. economy. It introduces a firm dynamics model with heterogeneous markups and customer accumulation based on directed search, in which larger firms gain a competitive edge from higher returns to scale. This makes markets less contestable for new firms and leads to the rise of superstar firms. The model quantitatively accounts for a substantial share of these trends, and the underlying micro-level mechanisms align with empirical evidence.

Authors: Chiavari, A

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Place of publication: Oxford
• Publication date: 2024-09-01
• Paper number: 1097
• Language: English
• Keywords: technological change; search and matching; customer capital; firm dynamics