Aging Consumers, Competition, and Growth

As people age, their preferences become less elastic and the opportunity cost of time drops post-retirement. Hence, demographic changes influence market competition and economic growth by altering the age composition of consumers and, consequently, their purchasing behavior. We identify this demand-side channel of demographic changes using unexpected shifts in the age composition of firms' foreign demand. We find that middle-aged consumers reduce competition with respect to younger and older consumers, resulting in lower production and higher prices. In a multi-sector general equilibrium search model we show that young consumers enhance between-varieties competition and old consumers enhance within-varieties competition. In contrast, middle-aged consumers temper competition on both margins, shifting demand toward less productive firms, which raises average prices and slows economic growth. In the United States, changes in the age composition of consumers led to an 8.7% reduction in GDP growth from 1995-2004 and a 10.3% increase from 2005-2019 as baby boomer cohort aged.