Q: Risk, rents, or growth?

We document that the increasing polarization in Tobin’s $Q$ within industries is closely connected to the growing divergence in rents and the emergence of superstar firms over the past four decades, while discount rates and growth rates did not exhibit the same increasing dispersion. We explain these industry polarization trends in an estimated general equilibrium model where each industry consists of large superstar oligopolists and small monopolistically competitive firms with endogenous transitions between them. Small firms make investments in speculative innovation to increase their probability of becoming superstars. Our model estimation finds that rising entry barriers in both small and superstar firms contribute to rising polarization in markups, but the rising barriers to creating small firms and increasing tastes for goods produced by superstars account for most of the divergence in $Q$. Stunting the creation of small firms generates greater incentives for speculative innovation, magnifying the impact of market power dispersion on industry polarization in $Q$.