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Firm dynamics and pricing under customer capital accumulation

Pau Roldan-Blanco and Sonia Gilbukh

Journal of Monetary Economics, 2021, vol. 118, issue C, 99-119

Abstract: In a search model of firm dynamics, customer accumulation is shown to affect the lifecycle of firms and the dynamics of markups in response to aggregate demand shocks. In the model, sellers of different sizes and productivities post dynamic pricing contracts to strike a balance between attracting new customers and exploiting pre-existing ones. Calibrated using establishment-level and micro-pricing data from the U.S. retail sector, the model provides a quantitatively good fit to the lifecycle and cross-sectional properties of retail establishments. Further, the model predicts that markups are procyclical to aggregate demand shocks, with a larger contribution by small sellers.

Keywords: Customer capital; Directed search; Firm dynamics; Dynamic contracts (search for similar items in EconPapers)
JEL-codes: D21 D83 E2 L11 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Firm dynamics and pricing under customer capital accumulation (2018) Downloads
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DOI: 10.1016/j.jmoneco.2020.01.011

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