Abstract
I document that online feedback loops, such as search engines, drive customers and revenues to prominent firms. This creates barriers to entry, weakening competition and contributing to rising industry concentration. To identify prominent firms online, I measure centrality in a network of firm websites covering more than 100,000 public and private firms. Industries with firms that are more central become more concentrated and central firms increase their market share during the sample period. This appears to be due to firms' ability to generate revenues. Central firms become more profitable and peripheral firms earn negative risk-adjusted returns and underperform earnings forecasts. Evidence from the COVID-19 shutdown, which drove economic activity online, supports these conclusions. Central firms received the vast majority of the influx of web traffic and had significantly higher returns during the shutdown. My results highlight the difficulties of maintaining competition in an increasingly digital economy.
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