Abstract: Large firms exhibit systematically higher capital-intensity than their competitors, a fact at odds with standard models where firms' technological differences are factor-neutral. This paper develops a general equilibrium framework in which firms expand by adapting their technology in order to integrate capital goods when they become cheaper. Firms can pay a firm-specific switching cost to change their production technology for a more capital-intensive one. As the cost of capital falls due to capital-embodied technical change, the firms that face the smallest switching costs become relatively more capital intensive and gain a competitive edge. This allows them to build market shares and markups. Markups endogeneity generates strategic complementarities which widens further the dispersion in capital intensity and market shares. The model provides a unified explanation for rising dispersion in markups, a falling aggregate labor share despite a rising median labor share, sluggish investment, and the divergence between sales and employment concentration. 

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