Price Rigidity in Customer Markets

Jean-Robert Tyran and Elke Renner

University of St. Gallen Department of Economics working paper series 2003 from Department of Economics, University of St. Gallen

Abstract: Customer markets are characterized by long-term relations between buyers and sellers. Long-term relations evolve if buyers trust sellers to provide high quality and if sellers are trustworthy. However, changes in the terms of this implicit contract may antagonize customers and disrupt the relation. We experimentally show that mutually beneficial long-term relations frequently prevail in markets for experience goods, and that price rigidity after a temporary cost shock is much more pronounced if price increases cannot be justified by cost increases. Hence, long-term relations on customer markets mitigate market failure of the “lemons” type, but are prone to price stickiness.

Keywords: Customer market; price stickiness; customer loyalty (search for similar items in EconPapers)
JEL-codes: C92 D43 L14 Z13 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2003-09
New Economics Papers: this item is included in nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Price rigidity in customer markets (2004)
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