Costly customer relations and pricing
AbstractIn this paper we show that when a monopolist incurs certain costs for servicing or maintaining its customer-base, price markups may decrease with high demand — i.e. markups are countercylical. Indeed, for a given market share when demand booms each customer on average will purchase more output and the costs of servicing clients are spread across a larger volume of output sold. This increasing-return effect raises the incentive for the monopolists to expand its market-share by reducing markups. We also find evidence on UK data that industries with higher customer-care costs tend to have a higher degree of coutercyclical markups as compared with industries with lower such costs. Copyright 2007 , Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 59 (2007)
Issue (Month): 4 (October)
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- Ali Choudhary & Thorlakur Karlsson & Gylfi Zoega, 2009.
"Survey Evidence on Customer Markets,"
wp45, Department of Economics, Central bank of Iceland.
- M. Ali Choudhary, 2004. "Connecting People," School of Economics Discussion Papers 0404, School of Economics, University of Surrey.
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