Business dynamism has experienced a significant decline during the last decades in the United States. This paper offers a new explanation based on the assumption of provider-driven complementarity, which makes seemingly independent products become complements when provided by a single firm. I develop a quality ladder growth model where provider-driven complementarity is crucial in determining firms' incentives to challenge incumbents in their established markets. I show that a decline in the average size of innovations induces a growth slowdown. Moreover, I find that the entry rate declines, and both concentration of sales and Research and Development expenditure increase even as the growth rate of the economy declines. This is in contrast to a standard quality ladder model without provider-driven complementarities which implies the reverse. The asymmetry generated by provider-driven complementarity between entrants and incumbents in their incentives to conduct R&D is key for generating the decline in business dynamism.
Inside the decline of the labor share: Bringing the tales together
This paper explores the industry level anatomy of the decline in the US labor share over the last two decades. This decline is vastly heterogeneous at the industry level and is contemporaneous to a strong process of structural change from manufacturing to services industries. Both phenomena have received a lot of attention in the literature, but there is still no consensus on what are the key determinants that explain the former. In this paper, I contribute to the existing literature by building a two-sector model in which the main mechanisms usually proposed to explain the decline in the labor share, namely technological change and changes in the level of competition, can jointly explain both the decline in the labor share and the pace of structural change between sectors. The model is then taken to the data, where I perform a quantitative analysis. Although both mechanisms jointly interact in equilibrium, I show that changes in the level of competition (driven by changes in the levels of markups across sectors) are key to explain the decline in the labor share, while biased technological change is the main driver of the pace of structural change