THE DURABILITY OF INFORMATION, MARKET-EFFICIENCY AND THE SIZE OF FIRMS

We analyze a search-theoretic framework in which consumers buy the pro duct repeatedly and firms' costs vary over time. We show the cross-sec tional correlation between profits and firm size, the persistence of p rofits over time, and the role of consumers' immobility in determining firms' profits. In contrast with previous explanations of these pheno mena, which are based on differences in inherent productive efficienci es, firms in our model have the same efficiencies but some firms are m ore successful ex post which affects their subsequent (pricing) behavi or and enables them to sustain their privileged position. In particula r, large and more profitable firms raise their prices more moderately when their costs increase.