Price Setting with Customer Capital: Sales, Teasers, and Rigidity

Leena Rudanko

Journal of Political Economy Macroeconomics, 2025, vol. 3, issue 2, 241 - 268

Abstract: This paper studies price setting in frictional product markets with long-term customer relationships, distinguishing between markets in which such relationships are implicit versus explicit. The theory gives rise to fluctuating prices akin to temporary sales when relationships are implicit and firms set a common price for their customers, and teaser pricing when relationships are explicit and firms are able to differentiate between new and existing customers. Both feature stable regular prices and variable sale/teaser prices when firms face idiosyncratic shocks. Firms accumulate customers gradually, with pricing playing a key role, yet prices remain independent of the firm’s customer base.

Date: 2025
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