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Firm dynamics and pricing under customer capital accumulation

Pau Roldán () and Sonia Gilbukh ()
Additional contact information
Pau Roldán: Banco de España
Sonia Gilbukh: Cuny Baruch College

No 1838, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper analyzes the macroeconomic implications of customer capital accumulation at the firm level. We build an analytically tractable search model of firm dynamics in which firms compete for customers by posting pricing contracts in the product market. Cross-sectional price dispersion emerges in equilibrium because firms of different sizes and productivities use different pricing strategies to strike a balance between attracting new customers and exploiting incumbent ones. Using micro-pricing data from the U.S. retail sector, we calibrate the model to match moments from the cross-sectional distribution of sales and prices, and use our estimated model to explain sluggish aggregate dynamics and cross-sectional heterogeneity in the response of markups to aggregate shocks. We find that there is incomplete price pass-through leading to procyclicality in the average markup, with smaller firms being more responsive to shocks than larger firms.

Keywords: customer capital; product market frictions; directed search; firm dynamics; dynamic contracts; price dispersion (search for similar items in EconPapers)
JEL-codes: D21 D83 E2 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
Date: 2018-11
References: View references in EconPapers View complete reference list from CitEc
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https://www.bde.es/f/webbde/SES/Secciones/Publicac ... 18/Files/dt1838e.pdf First version, November 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1838

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