Markups Dynamics with Customer Markets

Nicholas Trachter, Andrea Pozzi and Luigi Paciello ()

No 39, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: We study a model where customers face frictions when changing their supplier, generating sluggishness in the firm's customer base. Firms care about expanding their customer base and this affects their pricing strategy. We characterize optimal pricing in this model and estimate it using data on the evolution of the customer base of a large US retailer. The introduction of customer markets reduces average markups, more markedly for less productive firms. We use the model to perform a counterfactual exercise and investigate the cyclical behaviour of markups in response to both aggregate supply and demand shocks.

Date: 2014
New Economics Papers: this item is included in nep-bec, nep-com, nep-dge and nep-mkt
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:39

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