Entry and Profits in an Aging Economy: The Role of Consumer Inertia

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ID: 328863
2026
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Abstract
Abstract Over the past four decades, the U.S. economy has seen a decline in the share of young firms alongside a rise in the profit share of GDP. This paper explores how population aging contributes to these twin trends through a demand-side channel. The core hypothesis is that younger households exhibit lower consumer inertia—a tendency to stick with previously chosen products—than older households. As demand shifts toward more inertial consumers, entry becomes harder, incumbents raise markups, and market share tilts toward larger firms. To quantify this mechanism, I develop and calibrate a firm dynamics model with overlapping generations of consumers who differ in their degree of inertia. Using detailed micro data, I show that younger households are significantly less inertial. The model implies that population aging accounts for 20%–30% of the observed decline in young firms and rise in profits. Reduced-form evidence across U.S. states and product categories supports the model’s predictions.
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openalex_W7213430861 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Gideon Bornstein
Journal The Review of Economic Studies
Year 2026
DOI
10.1093/restud/rdag108
URL
https://doi.org/10.1093/restud/rdag108
Keywords Keywords not found

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