The authors analyze a search-theoretic framework in which consumers buy the product repeatedly and firms' costs vary over time. They show the cross-sectional correlation between profits and firm size, the persistence of profits over time, and the role of consumers' immobility in determining...

We construct an industry-equilibrium model in which it is costly for consumers who have previously purchased from one firm to switch to competitors. This gives firms a certain degree of market power over their established customers. The equilibria we identify under these conditions have the...

This article provides a microfoundation for the rise in optimism that seems to precede market crashes. Small, young markets are more likely to experience stock-price run-ups and crashes. We use a Zeira-Rob type of model in which demand size is uncertain. Optimism then grows rationally if...

Micreconomic data show two important facts about new products. First, some products are more important than others. Second, it takes them years to penetrate the market significantly. The authors' calibrated model with these features overpredicts the autocovariance of U.S. GNP at long lags but...