One of the most striking trends in the aggregate economy over the past few decades is the persistent rise in industry concentration. Firms operating in concentrated industries engage in highly strategic price competition to capture market share and maximize profits. In this research agenda, we examine the implications of strategic competition among firms in concentrated industries for their stock returns and bond prices.

We begin by documenting two key facts based on data from U.S. public firms. First, price wars—a prominent form of intensified competition in product markets—are more likely to occur during economic recessions. Second, firms in profitable industries are more exposed to price war risk. To explain these facts and explore their implications for asset pricing, we develop novel dynamic oligopoly models that incorporate strategic price competition among leading firms within an industry. These models aim to address long-standing puzzles in financial markets, including the profitability premium, financial distress anomaly, and profitability-leverage puzzle, all of which can be rationalized by the varying exposure to competition risk across industries.