Rising customer durability, falling business dynamism

We study how the durability of customer relationships shapes competition, innovation, and the allocation of economic activity. Using novel data from M&A accounting disclosures, we construct a forward-looking measure of customer durability based on firms' expected useful lives of their customer relationship-related intangible assets, covering nearly 9,500 acquisitions and $8 trillion in assets from 2002 through 2024. We document a substantial rise in durability across industries and examine its implications in an endogenous growth model in which longer-lasting customer relationships amplify incumbents' market power. Empirically, greater durability is associated with higher markups and profit shares, increased concentration, reduced entry and exit, lower job reallocation, slower wage growth, and a declining labor share. Consistent with our model, we also find an inverted-U relationship between durability and innovation, with high durability reducing both the quantity and quality of innovation, partly through lower R&D investment. Taken together, our findings highlight rising customer durability as a novel mechanism that helps reconcile the simultaneous increase in market power and decline in U.S. business dynamism, with important implications for competition policy.