Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324846 
Year of Publication: 
2025
Series/Report no.: 
Staff Reports No. 1159
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
This paper studies the relationship between market concentration and aggregate productivity when firmlevel demand emerges from past marketing investments. Granular firms may invest in demand both to complement their productivity and to amplify market power-this second force can create persistent mismatch between customer capital and productivity. The importance of this mismatch depends on the relative persistence of productivity and demand. Empirically, we find that demand is more persistent than productivity, implying a sizable role for mismatch. This leads to sluggish demand-side adjustment in the face of productivity shocks in the quantified model. Policies targeting static markup distortions-such as production subsidies-can exacerbate excessive marketing and thus are subject to a tradeoff between static gains and dynamic losses.
Subjects: 
firm dynamics
productivity
demand
customer capital
market concentration
competition
innovation
JEL: 
O31
O32
O34
O41
D22
D43
L11
L13
L22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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