Monetary policy, customer capital, and market power

Monica Morlacco and David Zeke

Journal of Monetary Economics, 2021, vol. 121, issue C, 116-134

Abstract: In U.S. firm-level data, large firms increase their spending on customer capital significantly more than small firms following an interest rate decline. We interpret this evidence in a model with product market frictions where heterogeneous firms strategically advertise to build a customer base. When a firm advertises, it shifts customers’ demand away from competitors. This externality is especially severe when firms have a sizable existing customer base, discouraging smaller competitors and making them less responsive to interest rate shocks. The model provides a rationale for the rise in market concentration and market power in recent decades, while interest rates fell.

Keywords: Customer capital; Monetary policy; Industry concentration; Product market competition (search for similar items in EconPapers)
JEL-codes: D43 E22 E40 E52 L11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:121:y:2021:i:c:p:116-134

DOI: 10.1016/j.jmoneco.2021.04.010

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