Customer Capital

Francois Gourio and Leena Rudanko

No 17191, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms spend substantial resources on marketing and selling. Interpreting this as evidence of frictions in product markets, which require firms to spend resources on customer acquisition, this paper develops a search theoretic model of firm dynamics in frictional product markets. Introducing search frictions generates long-term customer relationships, rendering the customer base a state variable for firms, which is sluggish to adjust. This affects: the level and volatility of firm investment, sales, profits, value and markups, the timing of firm responses to shocks, and the relationship between investment and Tobin's q. We document support for these predictions in firm-level data from Compustat, using cross-industry variation in selling expenses to quantify differences in the degree of friction across markets.

JEL-codes: D83 D92 E22 L11 (search for similar items in EconPapers)
Date: 2011-07
Note: CF EFG IO ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as \Customer Capital" with Francois Gourio Review of Economic Studies, forthcoming

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Related works:
Journal Article: Customer Capital (2014)
Working Paper: Customer Capital (2010)
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