Market share and price rigidity

Isaac Kleshchelski and Nicolas Vincent

Journal of Monetary Economics, 2009, vol. 56, issue 3, pages 344-352

Abstract: Survey evidence shows that the main reason why firms keep prices stable is that they are concerned about losing customers or market share. We construct a general equilibrium model in which firms care about the size of their customer base. Firms and customers form long-term relationships because consumers incur costs to switch sellers. In an environment with sectoral productivity shocks, we show that cost pass-through is a non-monotonic function of the size of switching costs. Specifically, prices tend to become more stable as the fraction of repeat customers increases and the elasticity of the customer base falls.

Keywords: Price; rigidity; Market; share; Customer; relations; Real; rigidities (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:3:p:344-352

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