We develop a model of firm size in which firms are unable to access as many consumers as they want. Nwely arrived consumers match randomly with firms. Subsequently consumers must pay "search costs"to be able to switch firms.

The authors analyze a search-theoretic framework in which consumers buy the product repeatedly and firms' costs vary over time. They show the cross-sectional correlation between profits and firm size, the persistence of profits over time, and the role of consumers' immobility in determining...

We construct an industry-equilibrium model in which it is costly for consumers who have previously purchased from one firm to switch to competitors. This gives firms a certain degree of market power over their established customers. The equilibria we identify under these conditions have the...