ANDREA

Abstract I explore the role of aggregate fluctuations as a persistent determinant of heterogeneity in firm-level markups. To analyze how business cycles generate dispersion in markups, I estimate the effects of aggregate conditions at key moments of firms' lives on the age profiles of markups for a sample of U.S. listed companies. Using the estimated markups, I calibrate a general equilibrium model that features heterogeneous product markets, customer base accumulation and firm dynamics. A novel feature of the model is that, in addition to making direct investments in customer acquisition, firms can accumulate customers by increasing sales, which is important to match the empirical findings. As the value of operating in each product market fluctuates endogenously with business cycles, aggregate conditions generate a selection on the product-market composition of firm cohorts that results in time-varying heterogeneity in product-market characteristics across active companies. This..