  Why is the U.S. industry-level productivity dispersion countercyclical?
Theoretically, we build a duopoly model in which heterogeneous R&D costs
determine firms' optimal behaviors and the equilibrium technology gap after a
negative profit shock. Quantitatively, we calibrate a parameterized model,
simulate firms' post--shock responses and predict that productivity dispersion
is due to the low-cost firm increasing R&D efforts and the high-cost firm doing
the opposite. Empirically, we construct an index of negative profit shocks and
provide two reduced-form tests for this mechanism.
