PRICE DYNAMICS WITH CUSTOMER MARKETS

Luigi Paciello (), Andrea Pozzi and Nicholas Trachter

International Economic Review, 2019, vol. 60, issue 1, 413-446

Abstract: Using microdata from a U.S. retailer we document that customer turnover responds to pricing. We study the optimal price setting of a firm when its demand has an extensive margin that is elastic to price due to customers' opportunity to search for an alternative supplier. The price pass‐through of idiosyncratic productivity shocks is incomplete, with the most productive firms passing through more. Firm demand is more persistent than price. Higher demand is associated with lower markups due to higher search intensity, despite flexible prices. We find empirical support for these predictions in microdata from the retail industry.

Date: 2019
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https://doi.org/10.1111/iere.12358

Related works:
Working Paper: Price Dynamics with Customer Markets (2017)
Working Paper: Price Dynamics with Customer Markets (2017)
Working Paper: Price Dynamics with Customer Markets (2014)
Working Paper: Price Dynamics with Customer Markets (2014)
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