Agenda

Gaetano Gaballo (HEC Paris) - Faster Markets, Slower Growth: Consumer Information and R&D Competition

Abstract:

Using data on U.S. public companies, we document that market shares have become more dynamic: firms reach leadership positions substantially faster than in the past, even as leadership has become more persistent. We develop a tractable growth model in which improved consumer access to market data lowers information costs and intensifies product-market competition by accelerating demand reallocation toward high-performing firms. Faster reallocation raises the private value of innovation and stimulates entry into R&D races. However, a novel breakaway friction–requiring innovators to build a multi-step lead–makes this intensified competition socially inefficient. Innovation occurs in larger but less frequent spikes, magnifying private incentives to invest in R&D while slowing aggregate growth. The model thereby reconciles faster market-share dynamics and rising R&D effort with increasing concentration, declining turnover, and slower productivity growth.