This dissertation examines how output market structure generally, and imperfect output substitutability in particular, affect the distribution of productivity levels across production units in the economy. Theoretical models are used to show that increases in output substitutability, by making it easier for customers of an industry to switch suppliers, truncate the equilibrium productivity distribution from below. This implies that industries (or market segments within industries) having higher output substitutability will have less dispersion and greater central tendency in their establishment-level productivity distributions than low-substitutability industries or markets. These theoretical notions are empirically confirmed, both across manufacturing industries and in a case study of the ready-mixed concrete industry. The empirical results suggest output demand structures explain a significant part of the large and persistent productivity dispersion observed in the economy.